Avoid this S-Corporation Health Insurance Deductible Mistake
| If you own more than 2 percent of an S corporation, you have to do three things to claim a deduction for your health insurance: -You must get the cost of the insurance on the S corporation’s books. -Your S corporation must include the health insurance premiums on your W-2 form. -You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form 1040. The three-step procedure also applies (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation and get health insurance coverage, even if they don’t own a single share of S corporation stock directly. You need to get this right. Without the W-2 treatment, the S corporation does not get a tax deduction. With the correct W-2 treatment, the more than 2 percent shareholder who finds the health insurance premiums on his or her W-2 can claim the self-employed health insurance deduction on Form 1040, provided he or she is not eligible for employer-subsidized health insurance through another job or a spouse’s job. If you or your S corporation did not handle this correctly in the past, we need to get busy amending those returns to create and protect the proper tax deductions |
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