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Slef-employed health insurance

misskeiko
Level 4

Hello,

For self-employed S crop, if I am the only owner, is it the same to deduct self-employed health insurance in either S-Corp or form 1040? 

Thank you!

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IRonMaN
Level 15

You can't deduct it on the 1120S in either case.  It is only deductible on the 1040 if it was added to their W-2.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?

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9 Replies 9
IRonMaN
Level 15

It needed to be added back to your W-2 in order to be deducted on the 1040.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?
misskeiko
Level 4

Hello,

I have 2 questions.

1. How can I decide if it's included in W-2.

2. If it is in W-2, does it mean I can deduct in both 1040 and S-Corp?

 

Thank you!

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IRonMaN
Level 15

As far as number 1 goes, usually if you have to ask that question, it isn't included.  

If it was added to W-2 wages, then you back of the insurance and don't deduct it on the 1120S.  Since we aren't dealing with an ice cream shop, you don't get to double dip once on the 1120S and again on the 1040.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?
misskeiko
Level 4

So does it mean:

If it is not included in W-2, then deduct in S Corp;

If it is included in W-2, then deduct in 1040.

But when I searched online, a lot of people say if it is included in W-2, then it can be deducted in both S-corp and 1040. I am so confused.

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IRonMaN
Level 15

You can't deduct it on the 1120S in either case.  It is only deductible on the 1040 if it was added to their W-2.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?

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qbteachmt
Level 15

If the health insurance premiums are paid by the S corp for the shareholder, that makes it a taxable event for the shareholder through payroll, except you don't need to do income tax withholding on it. That's because the shareholder then gets to include it as an income deduction. The S corp will see it as part of Gross Payroll, or this portion is a Taxable Fringe Benefit.

You never get to take it as Health Insurance Premium deduction in both places. That is what is meant by "cannot Double Dip."

Who did the payroll for this S corp? Is this your S Corp? Is that W2 yours? You keep using First Person for asking this question.

Whose tax return(s) are you working on?

*******************************
"Level Up" is a gaming function, not a real life function.
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misskeiko
Level 4

It is not me. I am working on a client's tax and got confused about health insurance. Is health insurance included in Box 12 of W-2 with code DD?

If the client is the only owner of S-Corp, what is the difference between deducting in C-Corp and Form 1040? S-Corp will flow through the shareholder in the end.

Thank you!

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qbteachmt
Level 15

No, this is Not Correct: "But if it is included in W-2, I feel it is the same to deduct in either S-corp or 1040 because S-corp will flow through shareholder in the end(if the client is the only shareholder of the S-Corp). Is that correct?"

The IRS has many things they investigate and watch for. In general, that would be Transferring personal costs to a business, which is Prohibited. That's why it is taxable as a Fringe Benefit through Payroll, for Social Security and Medicare, but not for Income tax. The shareholder then, Personally, puts it as an allowed deduction on their 1040. That helps you understand why it isn't part of Income Tax Withholding on the W2, although some employers don't bother to skip that part.

"Is health insurance included in Box 12 of W-2 with code DD?"

Did you look that up for yourself? Google this:

w2 box 12 codes dd

And bookmark the result that gives you clarity, for future needs. Build your resources. Here's another:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

"If the client is the only owner of S-Corp, what is the difference between deducting in C-Corp and Form 1040? S-Corp will flow through the shareholder in the end."

Because you are explaining that there is an intent to use the Business to take personal expenses as if that is part of the business. It is disallowed. That why you would not do this.

And because you keep overlooking that it will show for the business as part of Gross Taxable Fringe Benefit as part of the labor cost deduction. It cannot also be health premium expense deduction for the Business.

When the business pays the premium for a "more than 2% shareholder" they need to Tax it through Payroll as a Fringe Benefit. The fact that there is a personal provision for that shareholder to include it as part of Deductions is because, as the employee-shareholder, they are quasi- "Self-employed." It has the special treatment of not being business deduction as Health Insurance, as would be true for "non-owner" employees, and it has the special provision that the Shareholder-employee gets to deduct it on the 1404, but a "non-owner" employee does not. If there are shareholder-employees, there are different rules.

For a C Corp, you cannot compare to S Corp. The rules are different, yet.

Are you taking continuing ed classes, webinars, workshops, etc to stay current on tax regulations? Because this one changed for S Corps over 10 years ago.

*******************************
"Level Up" is a gaming function, not a real life function.
misskeiko
Level 4

I got it. But if it is included in W-2, I feel it is the same to deduct in either S-corp or 1040 because S-corp will flow through shareholder in the end(if the client is the only shareholder of the S-Corp). Is that correct?

Thank you!

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