Well, it is almost time to file your W2s with the government again (you should have already have gotten the employees their copies).  Just remember that if you own an S-Corporation you have to jump through extra hoops to be able to deduct your shareholder health insurance (every shareholder owning more than 2% of the S-Corp and their families insurance either paid through a corporate group plan or an individual plan reimbursed by the corporation.)

This rule was devised by the IRS in 2008 and only applies to S-Corporations.  The shareholders named above have to have their insurance included on their W2s as salary that is only taxable for federal and state income taxes (not subject to FICA, Medicare and any state disability or most local taxes), so box 1 and 16 of the 2014 W2s have to be increased by the insurance, and usually can be disclosed as ’2% SH Ins” in box 14 (but not required).

Then the additional salary will be reduced by a “Self Employed Health Insurance” deduction in the adjustments section on page 1 of the form 1040.  This effectively allows the S-Corporation to deduct the insurance without any tax consequences to the shareholder.

This is the ONLY way to deduct the insurance through the S-Corporation – otherwise the only way the insurance can be deducted is for the S-Corp to treat it as a distribution to the shareholder and then they can deduct as a medical expense (which may not be deductible because of AGI limitations) so make sure you if you own an S-Corporation you let your W2s processor know and if you are a tax preparer make sure you make all your S-Corporation clients know they need to do this.

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