S Corporation Health Insurance for Shareholders

Shareholders who own more than 2% of an S Corporation stock are treated differently from ordinary employees when it comes to health insurance premiums paid by the company. The S Corporation can pay or reimburse health insurance premiums for a more than 2% shareholder, but those premiums must be included in the shareholder's W-2 as taxable wages, which means the benefit does not avoid income tax the way it would for a regular employee. The shareholder can then deduct the same premium amount as an above the line deduction on their personal tax return, which effectively makes the premiums deductible at the individual level even though they were included in income. This same treatment applies to dental, vision, and long-term care insurance premiums for shareholders who own more than 2% of the company. The rules around S Corporation shareholder health insurance are easy to misapply, so it is important to make sure the premiums are reported correctly on both the corporate W-2 and the shareholder's personal return.