Shareholder - health insurance

[JG EA]

I need to review this. If a (2 shareholder) S-Corp has employees but no health insurance plan with the company, but they as individuals have health insurance for themselves - can I put this on as self-employed health insurance adjustment (for more than 2% shareholder, etc.)
I remember a discussion on this on the board, but can't find it now.
Thanks,

JG

[OldJack]

A S-corp shareholder filing his 1040 is not a self-employed person (as relates to the S-corp) and can't deduct personal paid health insurance premiums on page 1 unless the S-corp paid the health insurance premiums reducing S-corp profit, reported it on his S-corp W2 as gross income, thereby flowing the premium deduction through to his 1040 taxes for deduction on page 1.

[JG EA]

Thank you

Thanks for your help.

[veritas]

I have to respectfully disagree. The following is from IRS publication 535.

"The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040."

[JG EA]

Thank you Veritas

I have to respectfully disagree. The following is from IRS publication 535.

"The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040."

Yes, established under the plan was the discussion I remembered before. Thanks to your post I was able to look it up under "plan established" and find the discussion. I also looked up your reference.

[JG EA]

Another question on this line. I just looked up all the posts on S-Corps and W-2's. What if the S-Corp paid for the health insurance (different from my original question - a different S-Corp) and it wasn't put into the W-2?

It's on the books as health insurance. I can't put it on Line 7 anyway can I? I can't put it with benefits to less than 2% employees, could I put it with something else?

I realize if the S-Corp takes the expense, it will not go on the 1040 of the shareholder, but they have neat and tidy books and this needs to go somewhere. I even thought about calling it a distribution and then putting it on the 1040.

Any ideas?

[rosieea]

...
I realize if the S-Corp takes the expense, it will not go on the 1040 of the shareholder, but they have neat and tidy books and this needs to go somewhere. I even thought about calling it a distribution and then putting it on the 1040.

Any ideas?

I believe that in this case, it IS a distribution & not deductible by the S Corp.

[veritas]

Another question on this line. I just looked up all the posts on S-Corps and W-2's. What if the S-Corp paid for the health insurance (different from my original question - a different S-Corp) and it wasn't put into the W-2?

It's on the books as health insurance. I can't put it on Line 7 anyway can I? I can't put it with benefits to less than 2% employees, could I put it with something else?

I realize if the S-Corp takes the expense, it will not go on the 1040 of the shareholder, but they have neat and tidy books and this needs to go somewhere. I even thought about calling it a distribution and then putting it on the 1040.

Any ideas?

Amend the W2s. It's a fairly simple process. Then report as officer's compensation. If I was preparing the corporate return I would deduct as officer's compensation even if the w2s are not corrected.

[OldJack]

I have to respectfully disagree. The following is from IRS publication 535.

"The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040."

I disagree. Your quote is from page 24, under the heading of" Self-Employed Health Insurance Deduction". First a S-corp shareholder is not self-employed with the insurance established under a self-employed business. Second, he is allowed the deduction if the S-corp shareholder has a W2 from the S-corp that has established a health plan. Health premium plans with 3rd party insurance company may discriminate with only the owner being covered so they are not concerned about who actually paid the preimums as much as he must be an employee with a W2 and a health plan.

[veritas]

I would still deduct the premiums as officer's compensation. If I was doing the individual return I would include the premiums as wages on the personal return and take the deduction as an adjustment to income.

[Bees Knees]

I disagree. Your quote is from page 24, under the heading of" Self-Employed Health Insurance Deduction". First a S-corp shareholder is not self-employed with the insurance established under a self-employed business. Second, he is allowed the deduction if the S-corp shareholder has a W2 from the S-corp that has established a health plan. Health premium plans with 3rd party insurance company may discriminate with only the owner being covered so they are not concerned about who actually paid the preimums as much as he must be an employee with a W2 and a health plan.

The Pub says an S corporation shareholder with W-2 income from the S corporation qualifies for the self-employed health insurance deduction. It also says it does not matter whether the premiums were paid by the S corporation or by the shareholder. And Letter Ruling 200524001 which came out last summer says health insurance can be purchased under the individuals name and still be considered established under the business. It is not necessary for the insurance to be be under the name of the business.

[JG EA]

Thanks both of you

I think I will do as a distribution, they will prefer that to amending the W-2's.
Edit:
Just read the rest of the posts, I appreciate all your ideas.

[OldJack]

I agree with what Bees said better than I said it. The key point I was trying to make was that the individual must have a W2 from the S-corp as K-1 income or distributions doesn't count and it is a much clearer deduction if the S-corp pays the insurance premium.

[JG EA]

New decision

I'm leaving it on the books. I've changed my mind about distributions. I'm going to just fix it on the M-1 as a difference in the books and then claim it on the 1040 page 1.

[Unregistered]

What about taking the deduction on Page 3, Line 12D of Form 1120S as other deductions? It then comes through schedule K-1 with an S distribution code which is "Shareholder Health Insurance"?