While this is true for C-corporations, it isn't the case for S-corps.
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 premiums paid by the business can be deducted on your Form 1040 (line 29) and as a business expense on Form 1120S
.
S-corp owners may not have the same access to tax-free health insurance as non-owner employees, but they can still ensure their premiums are tax-advantaged. Specifically,
S-corp owners can take a personal income tax deduction on the health insurance premiums paid by the business
.
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.
Premiums Must Be Included on the Shareholder's W-2
If health insurance premiums are excluded from the shareholder's taxable income and are not included as additional compensation/wages on form W-2, the shareholder's premiums will not be considered deductible for that tax year.
Health and accident insurance premiums paid on behalf of a 2-percent S corporation shareholder-employee (owning more than 2%) of an S corporation are reported as wages on the shareholder-employee's Form W-2, subject to income tax withholding.
If you buy health insurance through the federal insurance marketplace or your state marketplace,
any premiums you pay out of pocket are tax-deductible
. If you are self-employed, you can deduct the amount you paid for health insurance and qualified long-term care insurance premiums directly from your income.
- Go to Employees, select Manage Payroll Items. Then select New Payroll Item.
- Select EZ Setup, and then Next.
- Select Insurance Benefits, and select Next.
- Select S Corp Medical, and select Next until Finish.
Can C-corp pay medical expenses?
What's unique about C-corps is that
both the employees and the owner of a C-corp can use an HRA to get 100% tax-free reimbursements for medical expenses for themselves as well as their family members
.
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 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.
Health Savings Accounts (HSA)
If the S Corporation contributes to the HSA on behalf of a greater than 2% owner, these contributions are treated as income and added to the shareholder's wages. They are reported in
box 1 of the form W-2 as wages
.
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
.
When you view the W-2 Summary Report or download the actual W-2 form, the year-to-date S Corp Health contributions will be added to the total in Box 1 for federal taxable wages, Box 16 for state taxable wages, and
Box 14, with the label “SEHI” for Shareholder Employee Health Insurance
.
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.
Is health insurance a business expense?
Generally speaking,
any expenses an employer incurs related to health insurance (for employees or for dependents) are 100% tax-deductible as ordinary business expenses
, on both state and federal income taxes.
You may be eligible to claim the self-employed health insurance even if you don't itemize deductions
. This is an “above-the-line” deduction. It reduces income before you calculate adjusted gross income (AGI). However, this deduction cannot reduce your Social Security and Medicare tax.
How do I claim health insurance?
Step 1.
Inform the company and submit the duly filled reimbursement claim form available with the insurer within 30 days from the date of discharge from the hospital
. Step 2. Attach all the original copies of the medical reports, medicine bills and hospital bills duly stamped and signed with the claim form.
How do I enter S corp health insurance in QuickBooks?
- Click Workers, and then Employees.
- Click the name of the employee you want to pay S-corp owners health insurance amount.
- Click Edit employee.
- Under How much do you pay this employee? …
- Click Even more ways to pay this employee to see more pay types, and select it from there.
- Click Done.
How do I categorize health insurance in QuickBooks?
- Go to the Transactions menu.
- Find the healthcare expense, or select Add transaction and enter it manually.
- Select Business for the type.
- Select the link in the Category column.
Contributions made to a shareholder-employee's health benefits plan are subject to state and federal income tax withholding. However, these contributions are
not subject to Social Security and Medicare (FICA) taxes
or unemployment tax.
