Nov 5 • Tax Tips = Free Social Posts
Tax Tip #18
🔥 DAILY TAX TIP #18
— S-CORP OWNERS: HEALTH INSURANCE MUST BE REPORTED CORRECTLY
Short Story:
A business owner proudly told me, “I run everything through my S-Corp, even my health insurance. It’s all deductible.”I said, “Show me where it’s reported on your W-2.”He blinked.When the IRS blinks back, it’s never friendly.
THE TAX RULES:• If you are a more-than-2% shareholder in an S-Corp and the company pays your health insurance, it must be included in your W-2.• It is shown in Box 1 of the W-2 (wages subject to income tax), but not in Boxes 3 and 5 (Social Security & Medicare), when properly set up.• This allows the shareholder to potentially take a Self-Employed Health Insurance Deduction on Schedule 1, Line 17 of
Form 1040.• Primary references:
- IRS Notice 2008-1
- Publication 15-B (Employer’s Tax Guide to Fringe Benefits)
- Instructions for Form W-2 and Form W-3
🧭 Quick Action:
✅ The S-Corp must either:• Pay the insurance premiums directly, or• Reimburse the shareholder in the same tax year.
✅ Add the total premiums to W-2 Box 1 as “Shareholder Health Insurance.”
✅ Do not include it in Social Security or Medicare wages (when correctly structured).
✅ Report the deduction on Schedule 1 of the shareholder’s personal return.
WHY IT MATTERS:
⚠️ If not reported properly, the IRS can disallow the deduction entirely.
💰 Done correctly, the deduction reduces adjusted gross income, which may reduce taxable income across multiple categories.
🛡️ Proper reporting protects both the S-Corp structure and the audit trail.
PRO TIP:
Add a year-end checklist item:
“Verify total health insurance paid for each >2% shareholder and confirm W-2 adjustment completed before filing. ”No scrambling. No regrets.
BOTTOM LINE DRILL CALL:
If the business pays your health insurance, your W-2 must say. No shortcuts. No silent reimbursements. Documentation + reporting = protection + deduction.
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Tax Tip #18
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