Question: Amy is a greater-than-2%-shareholder in an S corporation. Amy paid for her health insurance premiums personally, however, she sought reimbursement from the S corporation, which included those amounts in wages on Form W-2, Wage and Tax Statement, in Box 1. Can Amy deduct the health insurance costs?
Answer: Amy can deduct the premiums she paid personally since they are reimbursed by the S corporation assuming she has enough earned income from the business. For S corporation shareholders, earned income includes the individual’s wages, as defined in §3121 for purposes of Federal Insurance Contributions Act (FICA) taxes (i.e., social security and Medicare payroll taxes), from the S corporation [§162(l)(5)(A)]. Amy deducts these amounts on Form 1040, Schedule 1, Additional Income and Adjustments to Income, Line 17, Self-employed health insurance deduction. The deduction itself is calculated on Form 7206, Self-Employed Health Insurance Deduction.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.