Do you own an S-Corporation and pay for your own health insurance, like Medicare, or a policy through the ACA Marketplace?
If so, there’s a very specific step you must take to deduct those premiums on your personal tax return. If you don’t report it properly, you’re missing out on thousands of dollars.
How to Deduct Your Health Insurance
To qualify for the self-employed health insurance deduction as an S Corp owner, the IRS requires you to run those premiums through payroll. That means either:
- Your S Corp pays the premiums directly on your behalf, or
- You pay the premiums, but the S Corp reimburses you through an accountable plan.
And here’s the crucial part:
Your payroll provider must report the total premiums on your W-2 in Box 1 as wages, but leave them out of Boxes 3 and 5 (Social Security and Medicare wages).
That’s what makes the deduction legitimate and allows you to claim it ‘above the line’ on your personal tax return, without itemizing.
What Happens If You Don’t?
If you skip this step, or your payroll provider doesn’t handle it correctly, you can’t deduct the premiums. That means:
- You pay federal and state taxes on the money you used to pay for your own insurance
- You could miss out on $2,000 – $6,000 or more in tax savings each year.
We’ve seen it happen too often, especially with owners who:
- Enrolled in Medicare after turning 65
- Switched to an ACA Marketplace plan
- Use a payroll company that isn’t familiar with S Corporation specific rules.
What to Do Next:
- When your health insurance renews in December, make sure to tell your payroll provider (or us if we manage your payroll) so that the new increased January premiums can be reported correctly.
- Make sure the premiums are paid by your company or that you setup auto-reimbursement.