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S corporation paying for 100% shareholder policy purchased through the Exchange

Level 1

I'm wondering if anyone has thoughts on this scenario. The 100% shareholder has insurance through the state exchange with a nonsubsidized premium of $300 a month. The S corporation is paying this premium, taking the deduction and including that amount in Box 1 of the W-2. When it comes time to file the shareholder's 2021 tax return they are eligible for a premium tax credit of $2,000 because their actual income is less than what was included on their insurance application.

My question, does the shareholder need to somehow reduce their self-employed health insurance deduction for the premium tax credit? It seems unfair they would be able to deduct the entire $3,600 ($300 x 12) when they are only actually paying $1,600 after taking into account the premium tax credit.

Alternatively are they not able to take the premium tax credit to the extent the S corporation paid for and deducted those premiums?

Any thoughts would be greatly appreciated!


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3 Replies 3
Level 11

@dan_768 Google search IRS S corporation compensation and medical insurance issues and there is a detailed i r s explanation of various scenarios and I think your answer is there... And yes I think you are correct in stating that generally you cannot get a benefit twice from the same expense or deduction... Hope this helps

Level 15

On the 1095-A worksheet or 8962, there is a spot to 'link' it to a business.

That USUALLY allows the program to automatically calculate the proper things, but in their infinite stupidity, they disabled that for the 2020 program.  But it will still give you a red error that you can find, then guess-and-check the numbers until it works out.

Level 15

I can answer this part: "Alternatively are they not able to take the premium tax credit to the extent the S corporation paid for and deducted those premiums?"

It seems circular at first, but it's really a straight line.

The business pays and reports an expense, because they appropriately put it as a Taxable Fringe Benefit on the W2. That makes it part of Gross pay, so at this step, think of it as part of takehome (just not real dollars) that isn't taken home, the same as a garnishment. Your taxpayer has a taxable income event from this value. Your taxpayer has virtually given back the premium amount (or let the employer retain it), as post-tax dollars for the employer to use to pay the taxpayer's health insurance premium. It's the same as if the employer bonused out the additional amount, and the taxpayer made their own insurance payment.

Which means the taxpayer now gets to use their expenditure on their own tax return as a deduction.

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