How does a S-Corp sole owner deduct health insurance premiums?

[rock]

Taxpayer has filed his s corp and w2 but didn't account for health insurance payments. How does he deduct this expense?
Will he have to amend the s-corp and W2 or is there a workaround?

[Nashville]

Who paid for it?

Taxpayer has filed his s corp and w2 but didn't account for health insurance payments. How does he deduct this expense?
Will he have to amend the s-corp and W2 or is there a workaround?

Firstly, if the insurance was a qualified s.125 expenditure, the health insurance expense (net of employee contributions) should fall out as an ordinary and necessary business expense and 100% deductible as a fringe benefit.

The complicated question is probably how the shareholder deducts his part of the expense. Assuming he actually paid for part of the premiums. For a qualified plan, an employee is entitled to have the W-2 wages reduced for employee contributions. The reductions apply not only to taxable wages but also for social security/medicare taxable wages as well.

The above applies to all employees except those who own 2% or more of the S corp stock. According to your original post the S Corp has a 100% owner so he/she falls into this category. The W-2 for such an employee cannot be reduced in the same manner as other employees. I have been deducting the amounts CONTRIBUTED BY THE OWNER as an adjustment his personal return on the line item for "Self-Employed Health Insurance Deduction". If the owner has contributed nothing then there is no deduction anywhere on his personal return, period.

The "Self-Employed Health Insurance Deduction" is limited to his share of S corp profits, similar to what would happen if the company were a proprietorship or farm.

[Lion]

A one member group OMG can do what it always did, add company paid insurance premiums to W-2 box 1, then shareholder/employee deduct on 1040, qualified amounts on page 1, excess on A. At least until we see more guidance this summer from the IRS, ERISA, DOL, Congress, whoever. If more than one employee, even if not participating in health plan, I'd wait and keep reading and research the options.

[Lion]

U.S. Master Tax Guide® (2015),322.Employee Benefits Provided to S Corporation Shareholders

Related Information – Federal
The tax treatment of fringe benefits ( ¶2085) paid to employees of an S corporation is different for owner-employees than for other employees ( Code Sec. 1372). 62 Fringe benefits paid to S corporation employees who are not shareholders, or who own 2 percent or less of the outstanding S corporation stock, are tax free. They can be excluded from the employees' taxable wages and are deductible as fringe benefits by the corporation. Employee-owners owning more than 2 percent of the S corporation stock, on the other hand, are not treated as employees for fringe benefit purposes, and their fringe benefits may not be tax free. More-than-2-percent owners are treated in the same manner as partners in a partnership ( ¶421).

Health Insurance Expenses. An owner-employee who owns more than 2 percent of the S corporation stock can deduct 100 percent of the amount paid for medical insurance for himself, his spouse and dependents under a plan established by the S corporation ( Code Sec. 162(l)(1) and (5); Notice 2008-1). 63 The S corporation must either pay the plan's premium payments itself or must reimburse the shareholder for the payments.

For purposes of the deduction, a more-than-2-percent shareholder's wages from the S corporation are treated as the shareholder's earned income. No deduction is allowed in excess of an individual's earned income within the meaning of Code Sec. 401(c) derived from the trade or business with respect to which the plan providing the health insurance is established.

Footnotes
62
FED ¶32,160; SCORP: 352.20; PTE §28,801

63
FED ¶8500, FED ¶32,161.50; SCORP: 352.20; PTE §28,815