Can S-Corp write off employee health insurance premiums? Questions on health insurance deductions for family member employees

Your accountant is mistaken. An S-Corporation can absolutely deduct health insurance premiums for regular W-2 employees, including family members who work for the business but don't have ownership stakes. The rules that restrict health insurance deductions apply to shareholders who own more than 2% of the S-Corp's stock (and their family members who are considered related parties). Since you mentioned you have no ownership stake in the company, your health insurance premiums should be fully deductible as an ordinary business expense, just like they would be for any other employee. The company should be able to establish a group health plan that covers employees, or they can reimburse you for your individual policy premiums. Either way, these costs are deductible business expenses for the S-Corp and aren't taxable income to you as the employee.

Hey there, I had almost this exact same situation last year! I was getting totally confused about my health insurance deductions while working at my mom's S-Corp. After wasting weeks going back and forth with our accountant, I finally used https://taxr.ai to analyze our company's situation. It was super helpful because they reviewed our specific setup and explained that as a non-owner employee (even though I'm family), my health insurance should absolutely be deductible as a business expense just like any other employee. The tool highlighted the relevant IRS regulations and even provided documentation we could show our accountant. Their system actually lets you upload your tax documents and company structure info to get answers specific to your situation instead of generic advice that might not apply. Saved us a ton in premiums that would have otherwise been non-deductible!

Just wanted to update that I tried taxr.ai after reading the recommendation here. Our situation was slightly different - I'm working in my brother's S-Corp and we were told by our accountant that my insurance wasn't deductible. After uploading our company docs and ownership info, they confirmed that our accountant was wrong! Since I own 0% of the company and am just a regular employee (despite being family), my health insurance is 100% deductible as a business expense. They even provided us with the specific IRS references to show our accountant. We're going to save about $7,200 this year because of this correction. The analysis was super thorough and addressed our specific situation rather than generic advice.

Just wanted to update that I tried taxr.ai after reading the recommendation here. Our situation was slightly different - I'm working in my brother's S-Corp and we were told by our accountant that my insurance wasn't deductible. After uploading our company docs and ownership info, they confirmed that our accountant was wrong! Since I own 0% of the company and am just a regular employee (despite being family), my health insurance is 100% deductible as a business expense. They even provided us with the specific IRS references to show our accountant. We're going to save about $7,200 this year because of this correction.

If you're having trouble convincing your accountant about the health insurance deduction, you might want to get clarification directly from the IRS. I was in a similar situation last year and spent WEEKS trying to get through to someone at the IRS who could help. After endless busy signals and disconnects, I found https://claimyr.com and used their service to get through to an IRS agent in under 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others here have said - as a non-owner employee, your health insurance should be fully deductible by the S-Corp as a business expense. Having that confirmation directly from the IRS gave us the confidence to push back on our accountant's advice. Might be worth trying if you're still getting resistance.

I need to eat my words. After seeing the comments here, I decided to try Claimyr to get through to the IRS about my S-Corp health insurance question (and that separate issue I mentioned). Called yesterday afternoon - normally the WORST time to try reaching the IRS. The Claimyr system called me back in about 20 minutes with an actual IRS agent on the line! The agent confirmed everything said here - S-Corps can absolutely deduct health insurance for non-owner employees, including family members who don't own shares. They also helped with my other issue that had been hanging for months. Honestly shocked at how well this worked after all my failed attempts. Sharing because I was so skeptical about this claim and want others to know it's legitimate.

One thing nobody's mentioned yet - make sure your dad's S-Corp has an accountable plan or formal health insurance plan in place. This is important for documenting that the health insurance is being provided as an employee benefit and not just an arbitrary payment. Your dad should have the S-Corp adopt a written plan that outlines the health benefits provided to employees. This documentation is crucial if there's ever an audit. It doesn't need to be complex - just something that formalizes the arrangement and shows this is a legitimate employee benefit being provided consistently.

Has anyone looked into whether the premium reimbursement needs to be included on your W-2? I'm in a similar situation but my accountant is including the reimbursed amounts in Box 1 of my W-2 even though I'm not an owner.

I'm dealing with a very similar situation right now! My family's S-Corp just went through this exact issue with our accountant. What we discovered is that many accountants get confused about the ownership attribution rules and mistakenly apply the 2%+ shareholder restrictions to ALL family members, even when they have zero ownership. The key distinction is actual ownership vs. family relationship. Just because you're related to the owner doesn't automatically make you subject to the shareholder rules. Since you explicitly stated you have no ownership stake and receive a regular W-2, your health insurance premiums should be treated exactly like any other non-owner employee's. I'd suggest asking your accountant to show you the specific IRS code section they're relying on for their position. The attribution rules in IRC Section 318 only apply when determining if someone is a more-than-2% shareholder - they don't automatically disqualify family member employees from standard employee benefits if those family members don't actually own stock. Your situation sounds straightforward - you should be able to maintain the same health insurance deduction treatment you had as a C-Corp employee.