Don’t Miss Out on Big Tax Savings!
If you own more than 2% of an S-Corp, be sure you are reporting your health insurance premiums correctly to the IRS. Here’s the thing: if you’re not, you could be missing out on significant tax savings.
But before you get too excited, you also need to know that the IRS is very particular about how this fringe benefit should be reported.
Here’s How to Do It
The health insurance premiums should be included as taxable wages that are included in your W-2. [Box 1 (Wages) of Form W-2].
By adding the health insurance premiums as taxable wages, they would be subject to Federal and State income tax withholding. However, they are not subject to Social Security, Medicare (FICA), or Unemployment (FUTA) taxes. NOTE: When you get your W-2, the amount of your health insurance premiums will be included in box 14.
Do It Right!
By handling your company-paid health insurance premiums this way, you can still take the premiums as a corporate deduction.
That said, be aware that on your personal tax return your wages will be higher by the amount of the health insurance premiums. You can still subtract the premiums as an adjustment against your income leaving you with a lower AGI (Adjusted Gross Income) and, thus, lower taxes. You are allowed this deduction for self-employed health insurance.
Check the Details
Ensure the S-Corporation established the medical care coverage and that you as the shareholder meet any other self-employed medical insurance deduction requirements. An example of this is assuring that the shareholder’s spouse is not eligible to participate in any subsidized health care plan. If they are, then you, as the S-Corp shareholder, are not entitled to the deduction. [IRC § 162(l)]
Is it too late?
Check with your CPA. While it may be too late to change your 2022 W-2s, you can be prepared to make this change for next year—especially now that you know about it.
Meanwhile, pay your health insurance premiums as you have been, and contact your payroll provider before year-end. In fact, do it now. Why wait? Let them know the amount of health insurance premiums the company pays, so they can properly add this to the W-2(s) along the way rather than trying to get it in at the last minute. Your payroll provider will most likely appreciate it.
BOTTOM LINE:
Report your company-paid health insurance premiums correctly. If you don’t, you cannot claim the deduction. Do it right, and if you missed this year, you can catch it next year and save some money on taxes. Check the IRS website for further information, but we’d rather have you contact us if you have questions.
