If you form a regular “C” corporation, your corporation can provide you with health insurance as an employee fringe benefit and deduct the cost as a business expense
. And you don't have to pay any tax on the amount of the insurance premiums because they qualify as a tax-free employee fringe benefit.
Can I write off my health insurance as a business expense?
Health insurance premiums are deductible as an ordinary expense for self-employed individuals
. Whether you purchase the policy in your name or have your business obtain it, you can deduct health insurance premiums paid for yourself, your spouse, a dependent child or a nondependent child under age 27.
Can my S corp pay for my health insurance?
S-corporations can provide health insurance as a tax-free benefit to its non-owner employees
. This means the company offers group health insurance to employees and deducts the cost as a business expense, paying no taxes on the insurance premiums.
The business must pay the S-corp owner's premiums directly
.
It must also include the premiums as gross wages in the S-corp owner's Form W-2. If the S-corp owner pays the policy premiums on their own and then gets reimbursed by the business, this does not qualify the owner for a tax deduction.
C Corporations
The C Corporation, regardless of size, can deduct the premiums paid for health insurance for the owner, spouse and children
. They do have one additional benefit.
What is better C-corp or S corp?
C corporations can have foreign owners, unlimited shareholders, and multiple classes of stock. Winner:
C corps
. S corps are suited for smaller, domestic businesses that want to treat all owners the same way. C corps give companies unlimited growth potential and flexible options for ownership and profit distribution.
IRS Notice 2008-1, which outlines all the rules and regulations under which a 2 percent shareholder-employee in an S-corp can deduct accident insurance premiums and health insurance premiums, defines a 2-percent shareholder as “any person who owns (or is considered as owning within the meaning of § 318) on any day …
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2, subject to income tax withholding.
How much salary should S Corp owner take?
A commonly touted strategy to set your S Corp salary is to split revenue between your salary and distributions —
60% as salary, 40% as distributions
. Another common rule, dubbed the 50/50 Salary Rule is even simpler, with 50% of the business income paid in salary and 50% in profit distribution.
Can sole proprietors deduct health insurance?
A sole proprietor with no employees can deduct 100 percent of the premiums for health insurance for himself, his spouse and any dependents under the age of 27
. The taxpayer can't be covered by any other health insurance, and the premium can't exceed the profits of the business.
Can an S Corp owner take self-employed health insurance deduction?
If the medical insurance paid for by the S corp is properly reported on the shareholder's Form W-2, the greater than 2 percent shareholder should be able to take the self-employed health insurance deduction on their personal return. The S corp can deduct the expenses as wages.
The premiums paid by the business can be deducted on your Form 1040 (line 29) and as a business expense on Form 1120S
.
Tax treatment by the company
The cost of health insurance premiums paid by the S corporation for a 2% shareholder is included in the shareholder's W-2 as
Box 1 taxable income
. The amount is subject to federal income tax withholding.
If you've established your business as an S corporation,
the corporation can either pay your Medicare premiums directly on your behalf
(and count them as a business expense) or the corporation can reimburse you for the premiums, with the amount included in your gross wages reported on your W2, and you can then deduct …
You flat out get the best dollar benefit from your Medicare and supplemental insurance premiums when
you can deduct them as business deductions
. You can make this happen when: You are the sole owner and only employee of your C corporation.
Greater than 2 percent shareholders of an S corporation are considered self-employed, and therefore
aren't eligible to participate in an HRA
or pretax deductions for group health insurance.
What does S corp stand for?
“S corporation” stands for “
Subchapter S corporation
”, or sometimes “Small Business Corporation.” It's a special tax status granted by the IRS (Internal Revenue Service) that lets corporations pass their corporate income, credits and deductions through to their shareholders.
Can an S corp have one owner?
Yes, you can have an S corporation with only one shareholder
. Under U.S. tax rules, an S corporation is permitted to have anywhere from 1 to 100 shareholders.
Who pays more taxes S corp or C corp?
C Corps are subject to double taxation
. The corporation pays federal income taxes on net income. The shareholders pay federal income taxes again on any dividends they receive. S Corps, on the other hand, are pass-through entities.
You can get reimbursed for Medical Expenses
!
This is a major benefit of having reasonable compensation through your corporation. When you are an active shareholder with a W2 wage through the company you can get reimbursed for out of pocket expenses & medical insurance premiums!
What is S Corp 2% owner?
According to the IRS, a 2% S corporation shareholder is
someone who owns more than 2% of the company's stock at any time during the year
. This also applies to individuals who own more than 2% of the company's voting power. S Corp shareholders include individuals, trusts, or estates.
The health insurance premiums paid by the S corporation are reported on
Form W-2, Box 14 S
. This is the amount the shareholder deducts on page 1 of Form 1040, line 29 (Self- employed health insurance deduction)
A 2% shareholder is any person who owns – directly or indirectly, on any day during the taxable year – more than 2% of the outstanding stock or stock possessing more than 2% of the total combined voting power of the corporation.
The health insurance premiums paid on behalf of more-than-2% S corporation shareholder-employees are deductible and reportable by the S corporation as wages, the payments are included in the shareholder's wages for income tax purposes, and
the benefits are not subject to Social Security or Medicare (FICA) or
…
