COBRA Benefit as Business Owner?

Forum|Forum|3 years ago
April 11, 2023
1 reply
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Hi -

My business partner and I just left our company to start an S-Corp business. We have the ability to use COBRA benefits for 18 months from our former employer. We were under the impression that our new business can pay our monthly COBRA premium since we are owners in the business. However, our tax advisor (who we just met) is telling us this is not possible and that it the business needs to pay us (which is taxed). In addition, if we were to add ourselves to the business's health plan, that would be taxed as well.

I'm not sure I fully understand and looking for clarification and further explanation. Anyone other business owners out there that have ran across this?

Not A Product Question

DavidD66

As the owner of an S-Corporation, you can deduct the cost of your medical insurance, but it's a bit of process to do so. Your business has to either pay for the insurance coverage directly, or reimburse the owner for the cost. The business records the cost of the insurance as a deductible expense, but must also report the amount on the owner's W-2 as income. It is included in Box 1 Wages, but it is not subject to Social Security and Medicare Tax which are reported in boxes 3 & 5 of Form W-2. It is included as Owner's Compensation on Form 1120-S. If the cost of the medical insurance is paid for and reported as described, then the S-Corp owner can deduct the cost of the insurance on their personal tax return on Line 17 of Form 1040 Schedule 1, Self-employed health insurance deduction.

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