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S corporation health insurance: Medicare premiums; 'deemed' owners

January 27, 2009

Thanks to Google we get a lot of visitors here trying to unravel the mysteries of reporting S corporation fringe benefits, especially health insurance. That has triggered some good questions, which we'll try to wrap up this week. First up, a bunch of questions rolled into one:

Regarding health insurance and W-2 reporting for an S-Corp here is the fact pattern: -The S-Corp is owned 100% by the 75 year old father who is still active in the business and receives a W-2

-The S-Corp has 4 employees who are his children - all active doing real work - W-2's from $40,000 to $150,000

-The S-Corp pays the health insurance for all the children

-The father reimburses himself for his Medicare premiums and his personal Medicare supplement

Here are my questions:

1) Can the father claim the Medicare premiums as health insurance benefits - include on his W-2 - deduct as wages on the corp and deduct on his 1040 line 29 as self employed health insurance?

2) Can the father claim the Medicare supplement as health insurance benefits - include on his W-2 - deduct as wages on the corp and deduct on his 1040 line 29 as self employed health insurance?

3) Since a more than 2% shareholder of an S-Corporation also includes the shareholder's children, do the premiums paid for the children go on their W-2's, get deducted as wages on the corp and then get deducted on the children's returns as self-employed health insurance line 29?

The answer to 1 and 2: Voluntary payments for Medicare premiums, including supplemental coverage, are treated as health insurance under the tax law. If they are reimbursed by the employer- S corporation and included on the employee's W-2, they should be deductible to the shareholder on Form 1040, Line 29. See Rev. Rul. 79-175.

Question 3: Children of S corporation shareholders are considered to be 2% shareholders themselves (Rev. Rul. 91-26; see situation 2), and all of the Notice 2008-1 rules on health insurance apply the same way they would to the actual stockholder.

Link: Tax Update posts on S corporation shareholder health insurance

Tags: Notice 2008-1.S corporations.

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