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Health Insurance Wage Reporting Requirements for S Corporation Shareholder/Employee

A greater than 2% shareholder/employee in an S corporation is entitled to an above-the-line deduction for accident and health insurance premiums that are paid or reimbursed by the S corporation and included in the shareholder/employee's income.

To be eligible for this deduction, the following requirements need to be met:

• The taxpayer must be a greater than 2% shareholder of the S corporation.
• The deduction is not allowed to the extent that it exceeds the earned income (including wages) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.
• The deduction is not allowed for amounts during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by any other employer for the taxpayer or the spouse of the taxpayer.
• The S corporation must establish the plan providing medical care coverage for the 2% shareholder/employee. The plan is established by the S corporation if the S corporation makes the premium payments or reimburses the 2% shareholder-employee in the current tax year.
• The S corporation must report the premiums paid or reimbursed as wages on the 2% shareholder/employee's Form W-2 in the same year, and the shareholder must report these payments as gross income on his or her federal income tax return.

Taxpayers who did not claim deductions for these insurance payments may file timely amended tax returns to claim the deduction if they satisfy all the requirements.

For more information, please contact Micah Wheat at mwheat@BlackmanKallick.com or at 312-980-2949 or your Blackman Kallick representative. Our thanks to Greg Mudd for his contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.