Question

How to count S-Corp owners' ACA health insurance as business expense?

Forum|Forum|5 years ago
April 28, 2021
1 reply
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My spouse and I are the owners of an S-Corp. We don't have any employees. We have Affordable Care Action health insurance (more specifically, Covered California insurance) and want to count it as a business expense.

To my understanding the S-Corp needs to reimburse our health insurance premium by paying the premium to us as part of our salaries. However, I'm confused what will happen if we receive additional ACA subsidies or have to pay back excess ACA subsidies when filing the 2021 personal income tax return later. Will we need to go back and adjust all the 2021 salary amounts (and as a result adjust all federal and state quarterly payroll forms and the year-end W-2s), since the final health insurance premiums are different from the initial payments? This seems to be a big mess and I'm utterly confused.

Thanks a lot for your help!

D

DavidD66

All you need to do is adjust your W-2s, and have the company reimburse you for the cost of the insurance as of December 31, 2020. If you use a payroll service like QuickBooks payroll, or ADP, etc. they will know exactly how to do it.

As an S-Corp owner, you are entitled to a deduction for the cost of your health insurance, but only if certain requirements are met. The company must pay for the insurance premiums for the shareholders. The corporation can then deduct what it pays in premium as an ordinary business expense.

The premiums the company pays is a taxable fringe benefit for you, the shareholder. It must be added to your wages on form W-2. These additional wages are not subject to FICA or unemployment taxes, but should be included in box 1 of your W-2.

It’s not as bad as it sounds so far. You’re eligible for the self-employed health insurance deduction on your individual tax return.

Here’s how It works:

- The company takes a deduction for the premiums as an ordinary business expense.
- The company adds the premium amount to your wages, which increases your W-2 income.
- You take the Self Employed Health Insurance deduction on your personal tax return which reduces your taxable income.

This is the only way an S corporation shareholder can deduct the cost of health insurance premiums. The IRS has made it very clear: Follow these three steps or lose the deduction.

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