REMINDER: S-Corporation Owners & Health Insurance Tax Requirements

  |   December 30, 2019

While employees of S-Corporations are able to claim employee health insurance as a tax-free benefit, shareholders who own more than two percent of the company stock cannot. Their health insurance premiums are subject to a few special income tax rules:

  • Health, accident and dental health insurance premiums paid on behalf of a greater-than-two-percent shareholder must be reported as additional compensation to the shareholder.
  • HSA contributions paid on behalf of a greater-than-two-percent shareholder are also treated as health insurance premiums.

In order for the S-Corporation to take a tax deduction for the health insurance premiums paid by a greater-than-two-percent shareholder, and in order for the shareholder to be able to take advantage of the self-employed health insurance deduction on their personal income tax returns, these health insurance premiums must be included in the shareholder’s 2019 W-2.

  • The total amount of health insurance premiums paid must be provided to your payroll company before the final payroll of the year.
  • These health insurance premiums are not subject to FICA or Medicare taxes but are subject to Federal and State income tax withholding.
  • Be sure to include the health insurance premiums in Box 1 – Taxable Wages of the W-2, and in Box 14 with the description “2% SH Health Ins.”

For your convenience, we have prepared a Schedule you can use to provide the necessary health insurance information to your payroll company.

Please don’t hesitate to contact us if you have any questions.