Claiming S-Corp Health Insurance Deduction on 1040 and 1120S Forms?

Thanks for the explanation! Quick follow-up question - do I need to specifically identify these health insurance payments somewhere on the 1120S other than just including them in my wages? And also, does this apply to dental and vision insurance too, or just medical?

You don't need to separately identify the health insurance payments on the 1120S. They're simply part of the officer compensation (wages) paid to you, so they'll be included in the total wages reported on Line 7 of the 1120S. Yes, this treatment applies to all health-related insurance - medical, dental, and vision premiums are all handled the same way for S-Corp owners. They should all be included in your W-2 wages and then deducted on your personal return.

How does it work with the accounting software I already use? I'm using QuickBooks Online for my S-Corp and I've been marking the health insurance as "health insurance expense" - would this tool tell me if that's wrong?

I'm skeptical about tax tools since I had a bad experience with TurboTax mishandling my S-Corp stuff. Does it actually understand the complexities of S-Corps or is it more general tax advice? My situation includes health insurance but also HSA contributions through my business.

It integrates with most accounting software including QuickBooks Online. It will flag if you're categorizing health insurance incorrectly and show you the proper way to record it - for S-Corps, it should be tracked as compensation not just as a health insurance expense. The tool specializes in business structures including S-Corps - that's actually why I found it so helpful. It handles the complexities like health insurance, HSA contributions, and even home office deductions specific to S-Corp owners. It's much more targeted than general tax software that often misses these special cases.

Wait how does this actually work? Does it somehow put you ahead in the IRS phone queue? That seems impossible with how the IRS phone system works.

Sounds like BS honestly. The IRS doesn't let third parties hold your place in line. I've been dealing with S-Corp issues for years and always just call right when they open to minimize wait times.

It uses an automated system that continually calls the IRS and navigates through the phone menu options for you. Once it reaches a point where you'd normally be put on hold, it stays on the line in your place. When an agent finally picks up, you get a call connecting you directly to that agent. I was skeptical too until I tried it. It's not putting you "ahead" in the queue - it's basically waiting in the queue for you so you don't have to listen to the hold music for hours. I used it for an S-Corp health insurance question and for getting clarification on reporting requirements for my specific situation. Saved me hours of waiting and frustration.

Is this the same for all health-related insurance? Like if I have a cancer policy and disability insurance through my S-Corp, do those count toward the same limit or are they handled differently?

Good question! Health, dental, and vision insurance all count toward the same limit and are handled the same way. However, disability insurance is treated differently - it's not included in the health insurance deduction. Cancer policies depend on how they're structured, but most supplemental health policies follow the same rules as regular health insurance if they're qualified medical expenses. The key is that your combined health-related insurance deductions can't exceed your net earned income from the S-Corp. Just make sure all these premiums are correctly included in your W-2 wages first.

Not a stupid question at all! Yes, you've got it exactly right. The health insurance is included in your W-2 wages, which means it's subject to income tax initially. Then when you take the self-employed health insurance deduction on your personal return, it effectively cancels out the income tax on that amount. However, there's one important note: while the self-employed health insurance deduction removes the income tax on these premiums, they still remain subject to Medicare and Social Security taxes (FICA). This is one of the small tax disadvantages of the S-Corp structure compared to sole proprietorships.

This is such an important point about coordinating with your payroll processor! I'm just starting my second year as an S-Corp and I think I might have made this exact mistake. My payroll company has been processing my regular salary but I've been paying the health insurance premiums directly from the business account without telling them to include it in my W-2. So just to clarify - I need to either have my payroll company add the health insurance amount to my regular W-2 wages, or if I'm doing payroll myself, make sure I include those premiums when I calculate my total compensation for the year? And this needs to happen before I can take the deduction on my personal return? Also, do you have any tips for that spreadsheet setup? I've been pretty disorganized with tracking the monthly payments and I know I'll need better documentation.

@Yara Assad Yes, you ve'got it exactly right! You need to make sure those health insurance premiums are included in your W-2 wages before you can take the self-employed health insurance deduction on your personal return. If you re'using a payroll processor, definitely contact them ASAP to add those premiums to your remaining payroll runs this year. If you re'doing payroll yourself, include them when calculating your total officer compensation. For the spreadsheet, I keep it really simple - just columns for: Date, Premium Type Health/Dental/Vision (,)Amount Paid, Check Number or Transaction ID, and Notes. I update it monthly when I pay the premiums. At year-end, I just sum up the total and make sure that amount gets added to my W-2 wages. One tip: if you discover you missed including previous months premiums' in your W-2, you can often make a correction by increasing your wages in the remaining pay periods to catch up the total annual amount. Just make sure the full year s'health insurance premiums are captured in your final W-2.

This timing requirement is so crucial and I wish someone had told me about it earlier! I made a similar mistake where I was personally paying the premiums and then trying to reimburse myself from the S-Corp at year-end. Had to scramble to restructure how we handle it going forward. One follow-up question though - if you have a single-member S-Corp with no other employees, do you still need to worry about the "same terms" requirement for employees? Or does that only kick in once you actually have W-2 employees other than yourself? Also, for the direct payment requirement, does it matter if the S-Corp pays the insurance company directly versus paying it through payroll as additional compensation that you then use to pay the premiums yourself?

@MidnightRider Great questions! For single-member S-Corps with no other employees, you don't need to worry about the "same terms" requirement - that only applies when you have actual W-2 employees other than yourself as the owner. Regarding payment method, both approaches can work, but there's an important distinction. If the S-Corp pays the insurance company directly, it's cleaner and easier to document. If you go the payroll route (S-Corp pays you additional compensation that you use for premiums), make sure the extra compensation amount specifically corresponds to the insurance premiums and is properly documented as such. The key is that the S-Corp must be the entity ultimately funding the premiums during the tax year, and you need to be able to show that connection clearly. Direct payment to the insurance company is usually the simpler path and leaves less room for documentation issues. Also, whichever method you choose, stick with it consistently throughout the year - switching back and forth can create confusion during tax preparation.