How do S corporation shareholders deduct health insurance premiums?

ALICIA SHAUL
CPA MBA

More than 2 percent owner of S corporations are allowed to deduct 100 percent of the owners health insurance premiums as long the owner pays him(her)self a reasonable salary. To correctly report and deduct the owner’s health insurance premiums, the annual health insurance
premiums are added to the owner’s box 1 W-2 wages – not subject to either Social Security or Medicare taxes. The business takes an officer wage expense deduction for the owner’s gross wages plus health insurance premiums. The increased Box 1 wages and increased business wage expense deduction offset each other. Then the owner takes a self-employed health insurance deduction on Schedule 1 of his/her individual income tax return. Health, dental, vision, long term care insurance premiums all count as self-employed health insurance premiums for this deduction. Health insurance premiums should not be reported on the owner’s Form K-1. ♦