Health insurance premiums for S-Corp shareholders who own more than 2% of the company require special treatment. The premiums must be included on your W-2, but they’re also deductible on your personal return.
The Rule
The S-Corp includes the premium amount in the shareholder’s W-2 Box 1 as additional compensation. However, they are not subject to FICA taxes and should not be included in Boxes 3, 5, or 6. The shareholder then claims the self-employed health insurance deduction on Line 17 of Schedule 1.
Common Mistakes
The biggest mistake is not reporting the premiums on the W-2 at all. Another common error is including the premiums in FICA wages, which results in unnecessary payroll taxes. Some NJ S-Corp owners pay premiums personally and never run them through the business.
NJ State Treatment
New Jersey follows the federal treatment for health insurance premiums. The self-employed health insurance deduction flows through to your NJ-1040 the same way it does federally.
Bottom Line
If you have an S-Corp and you’re paying for your own health insurance, make sure the premiums are flowing through the company’s books and appearing on your W-2 correctly.
Disclaimer: The information provided is for general educational purposes only and does not constitute tax, legal, or investment advice. This content is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Tax outcomes depend on your specific facts and circumstances. Viewing this material does not create a CPA-client relationship. Personalized advice is provided only through a signed engagement letter.
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