Can I get insurance through my S-Corp?

November 2, 2023 Tiffany Bastian

What premiums are Deductible?

Health/Dental/Vision/Long Term Care Policies

Who can your premium cover?

This can include you, your spouse, and any children under 27.

How does this work?

S-Corporations can provide tax-free insurance premiums for all employees.

However, any shareholder who owns more than 2% of the S-Corp does not qualify for tax-free insurance. Any relative of the shareholder is also considered an owner and is unable to get tax-free insurance.

However, S-Corp shareholders who own more than 2% can still get health insurance through their S-Corp. The premium paid will be reported on the shareholder's W-2 as income. So the premium amount is subject to income tax (but is exempt from social security or Medicare tax), AND the premium is also counted as an expense for the S-Corporation.

The S-Corp must establish the policy and not the owner personally.

How do I pay the premiums?

Directly by the S-Corp

The S-Corp can make the payments directly to the insurance company, and these payments would go on your P&L as a benefit paid to the S-Corp Owner (We have this setup as a payroll expense subaccount named “Shareholder Insurance”). At year-end, we update the W-2 Box 1 with the amount in that account.

Reimburse the owner

The owner can pay their premium and then be reimbursed through an accountable plan. The expense would still go to the same account on the books and be reported in Box 1 of the W-2 at year-end.

How do the deductions work?

No reimbursement, no deduction

If the owner pays for premiums on their own without reimbursement from the business, they do not qualify for the deduction on the S-Corp Books.

DOUBLE THE DEDUCTION

If the S-Corp owner is not offered health insurance through another W-2 job or their spouse is not offered health insurance from a W-2 job, they can ALSO deduct the premium on their personal tax return. They get to utilize the Self-Employed least insurance deduction on their 1040 Schedule 1.

health plan eligibility

If either you or your spouse is eligible to enroll in an employer's health plan at any point during the tax year, even if you decide not to enroll and decline the coverage, any month meeting this condition will result in the loss of your tax deduction for that month. If you were eligible for the whole tax year, then you completely lose the deduction.

Remember that health insurance for LLC owners and Sole Proprietors can be a complex area with legal and tax implications. It's advisable to consult with a tax professional or legal advisor who can provide tailored guidance based on your specific situation.

References

IRS Publication 535 Business Expenses

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