Neil Johnson of Brown, Kaplan & Liss LLP in Chicago, Ill comments:
I believe the S-corporation shareholder-employee is allowed to deduct the
health insurance premiums as an adjustment to income as long as these premiums
are included as compensation on the W-2.
I believe this is addressed in the instructions for the 1040.
Neil Johnson Brown, Kaplan & Liss LLP
www.brownkaplan.com
Hi Neil.
Of course you're right.
And these paragraphs are missing from the published answer (I didn't want
to bore everyone with numbers.):
So suppose the insurance costs $2,000 and the S-corp's profts are $22,000
and your wages are $20,000.
If the company deducts the insurance, your pass-through income is $20,000.
BUT you must increase your wages by $2,000 to $22,000. Total income is $42,000.
AND you've just paid payroll taxes on that extra $2,000 in wages. But you
may be able to deduct the $2,000 of insurance as self- employed health insurance
on the front of your tax return as an adjustment to income. (called an above
the line deduction)
If the company doesn't deduct the insurance, your wages are $20,000, the
company's profits are $22,000. Total income is $42,000 So, you can deduct
the $2,000 of insurance as self-employed health insurance on the front of
your tax return. But, you've saved yourself 15.3% of the employer's and employee's
share of Social Security and Medicare + other payroll taxes.
In essence you come out ahead, if your company doesn't add the insurance
to your wages. That's why I don't advise it. That, and it's complicated.
Sometimes, shorter is better?
Best wishes,
Eva Rosenberg, MBA, EA
