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Special Treatment for Shareholder Health Insurance Premiums

We would like to remind you of a special treatment for shareholder health insurance premiums that may affect your S corporation.

For any shareholder owning greater than 2% of the S corporation’s stock , the accident and health insurance premiums paid by the corporation are reported as additional compensation to the shareholders and should be included on their W-2’s.   The expense is then deducted on the corporation’s Form 1120S.  The shareholder will generally be able to deduct the insurance premiums as self-employed health insurance on their individual form 1040 tax return.  Under family attribution rules, the spouse, children, grandchildren, and/or parents of a greater than 2% shareholder are considered to own the shareholder’s stock.  Thus, the spouse, children, grandchildren, and/or parents of a greater than 2% stockholder are subject to these rules as well.

The corporation runs the risk of losing the deduction for the health insurance premium on the corporation’s tax return if they are not included on the greater than 2% shareholder’s W-2.

There is special reporting for this fringe benefit and one of our accounting services team members can help if you have questions.