Owning a single-member LLC with S Corp status - optimal percentage for contributing to personal health benefits?
Hey tax people! I recently converted my one-person LLC to an S Corp status for the 2025 tax year. I'm trying to figure out what percentage my S Corp should contribute toward my personal health insurance. My accountant mentioned I could choose anywhere from 0% to 100%, but didn't really elaborate on the pros and cons of different percentages. Currently paying about $780/month for personal health insurance, and I'm wondering if there's an optimal percentage for my business to cover? Like, does having the S Corp pay 100% create any issues I should know about? Or is there some sweet spot percentage that maximizes tax benefits while minimizing complications? Revenue for my business is projected around $125k this year, taking about $75k as salary if that matters. Just trying to make the smartest decision here since this S Corp transition is new to me! Thanks in advance for any guidance!
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Rosie Harper
The good news is that as a >2% shareholder in an S Corp (which you are as the sole owner), the company can pay 100% of your health insurance premiums. This gets reported as wages on your W-2, but you can then deduct these premiums on your personal 1040 (Line 17) as self-employed health insurance deduction. The main advantage is that these premium payments avoid FICA taxes (Social Security and Medicare), which saves you about 15.3% compared to paying premiums with personal funds. Just make sure the S Corp either pays the premiums directly to the insurer or reimburses you and includes proper documentation. There's really no disadvantage to having the S Corp pay 100% versus a smaller percentage, as long as you properly document everything. The full amount can be deducted either way, so might as well maximize the FICA tax savings by having the S Corp pay the full amount.
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Elliott luviBorBatman
•Thanks for the response, quick followup... if the S-corp pays 100%, does that mean I can't use an HSA? Currently have a high deductible plan and I'm putting the max in my HSA every year.
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Rosie Harper
•You can absolutely still use an HSA with an S Corp-provided health insurance plan. As long as your health insurance plan qualifies as a High Deductible Health Plan (HDHP), you can contribute to an HSA regardless of who pays the premiums. The qualification is based on the plan type, not who's paying for it. The S Corp can even make contributions to your HSA as well, which would be reported as wages on your W-2 but are excluded from federal income tax. Just ensure your total HSA contributions (both personal and from the S Corp) don't exceed the annual limits - $4,150 for individual coverage or $8,300 for family coverage in 2025, plus an additional $1,000 if you're 55 or older.
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Demi Hall
Hey there! I was in a similar situation last year with my single-member LLC taxed as an S Corp. I was so frustrated trying to figure out the health insurance situation - my CPA gave me generic advice that left me confused. Then I found this AI tax research tool at https://taxr.ai that's specifically designed for small business owners. It analyzed my situation and showed me exactly how to structure my health benefits. The tool pulled up all the relevant IRS guidance and court cases showing that having my S Corp pay 100% of my premiums was actually most beneficial in my situation. It even provided template documentation for how to properly record the reimbursements to avoid audit issues. The best part was that it wasn't generic advice - it analyzed MY specific situation with income levels similar to yours.
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Mateusius Townsend
•How does this work with taxes though? If s-corp pays 100% of my health insurance, do I still deduct it somewhere on my personal return or does the business take the deduction?
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Kara Yoshida
•Sounds interesting, but does it actually work for complex situations? I have multiple income streams - both my S-Corp and some independent contracting work. Would it help figure out the optimal split for someone in my situation?
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Demi Hall
•The S Corporation pays your health insurance premiums, includes that amount in your W-2 wages (Box 1), but it's not subject to FICA taxes. Then you take the deduction on your personal tax return on Line 17 of Schedule 1 (Self-employed health insurance deduction). This effectively makes the premium amount income tax neutral while saving you the 15.3% in payroll taxes. For complex situations with multiple income streams, that's actually where I found it most helpful. The tool analyzed my S Corp income alongside my other 1099 work and helped determine the optimal allocation that maximized my tax savings across all income sources. It even factored in state-specific tax considerations which my accountant had missed.
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Kara Yoshida
Update after trying taxr.ai: I was skeptical but decided to give it a try given my complicated tax situation with my S-Corp. It actually provided surprisingly detailed guidance specific to my situation. It clearly outlined that having my S-Corp pay 100% of my health insurance was optimal for my situation, and it walked me through exactly how to document it properly. The system explained that I needed my S-Corp to either pay the insurer directly or reimburse me with proper documentation, then showed exactly how to report it on my W-2 and personal tax return. It even provided templates for the reimbursement documentation and board resolutions my company should keep on file. Definitely more specific and actionable than what my accountant provided.
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Philip Cowan
If you're struggling to get clear answers from the IRS about S Corp health insurance rules, I'd recommend trying Claimyr (https://claimyr.com). I spent weeks trying to get through to someone at the IRS about how exactly to report my S Corp health insurance payments, and kept hitting endless hold times or disconnects. Claimyr got me connected to an actual IRS agent in about 20 minutes when I'd previously waited for hours with no luck. The agent walked me through exactly how to document my health insurance payments through my S Corp and how they should appear on my tax forms. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Saved me hours of frustration and potentially costly mistakes.
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Caesar Grant
•How does this even work? The IRS phone system is notoriously terrible - I've literally waited 3+ hours before giving up. No way you got through in 20 minutes.
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Lena Schultz
•Sounds scammy tbh. Why would I pay someone to call the IRS when I can just call them myself for free? And do they listen in on your call with the IRS? That seems sketchy from a privacy standpoint.
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Philip Cowan
•The service uses a system that continuously redials and navigates the IRS phone tree until it gets a human, then it calls you and connects you. It's completely legit - you're talking directly to the IRS, Claimyr just handles the waiting and navigation part. I was skeptical too until I tried it, but it really does work. No, they don't listen to your call at all - they just connect you and then drop off. Once you're connected, it's a direct line between you and the IRS agent, completely private. I understand the skepticism, but when you've waited on hold for hours multiple times without getting through, the service fee becomes totally worth it to actually get your questions answered.
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Lena Schultz
Ok I have to admit I was completely wrong about Claimyr. After posting that skeptical comment I decided to try it anyway since I was desperate to get clarity on some S-Corp health insurance questions before filing deadline. The service actually worked exactly as advertised - I got connected to an IRS rep in about 15 minutes when I had previously wasted entire afternoons trying. The IRS agent confirmed that having my S Corp pay 100% of my health insurance was totally fine, explained exactly how to document it, and clarified how it should be reported on both my business and personal returns. Saved me from making a mistake that would have cost way more than what I paid for the service. Sometimes being proven wrong is a good thing!
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Gemma Andrews
Something nobody's mentioned yet - make sure you're taking a reasonable salary before the S-Corp pays for health benefits. IRS gets suspicious if you're taking minimal salary but the company is paying big benefits. My friend got audited because he took only 30k salary from his s-corp making 200k, while the business paid all his health insurance, car, etc.
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Darren Brooks
•Thanks for bringing this up - definitely a concern. My 75k salary is about 60% of the business revenue, so I think that's pretty reasonable? My accountant initially suggested 65k but I rounded up to be safe. Are there any specific ratios or guidelines I should be aware of?
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Gemma Andrews
•Your 75k salary on 125k revenue is very reasonable and shouldn't raise any red flags. The IRS doesn't have specific published ratios, but they generally look for "reasonable compensation" for the services you provide. General industry practice suggests that anywhere from 40-60% of net business income as salary is typically reasonable, depending on your industry and role. At 60%, you're definitely in a safe range. Most problems occur when people try to take like 20% as salary to minimize payroll taxes. Your approach is sensible and defensible if questioned.
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Pedro Sawyer
Has anyone here actually calculated the exact savings? I'm curious because my accountant says the benefits of s-corp health insurance are "substantial" but won't give me actual numbers.
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Mae Bennett
•I did the math on mine. With premiums at $950/month ($11,400/year), having my S-Corp pay saved me about $1,744 in FICA taxes (15.3% of $11,400) compared to if I'd just paid personally. That's basically getting 1.5 months of insurance free each year!
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Beatrice Marshall
•Careful with those calculations. Remember that while the S-Corp paying saves you FICA taxes, you still need proper payroll processing to handle the premium payments as W-2 income (but not subject to FICA). I handle my s-corp's payroll myself and messed this up the first year - had to file amended returns. If you use a payroll service, make sure they understand how to code health insurance for >2% S-corp shareholders correctly.
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Jamal Washington
Great question! I went through this exact same decision last year when I converted my LLC to S-Corp status. After researching and consulting with my tax professional, I ended up having my S-Corp pay 100% of my health insurance premiums. The math is pretty straightforward - at your $780/month premium ($9,360 annually), having the S-Corp pay saves you about $1,430 per year in FICA taxes (15.3% of $9,360). There's really no downside to going with 100% since you get the full deduction either way, but maximize your payroll tax savings. Just make sure you document everything properly. I have my S-Corp pay the insurance company directly each month, and my payroll service adds the premium amount to my W-2 wages (Box 1) but excludes it from Social Security and Medicare wages. Then I deduct the full amount on Line 17 of my personal return. One tip - if you're doing your own payroll, double-check that you're coding the health insurance correctly. It should be included in federal wages but excluded from FICA wages. I use QuickBooks Payroll and there's a specific payroll item for "Health Insurance (S-Corp >2% Owner)" that handles this automatically. With your $75k salary on $125k revenue, you're in a great position - very reasonable compensation ratio that won't raise any IRS eyebrows!
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Diez Ellis
•This is really helpful, thanks! Quick question about the documentation - when you say have the S-Corp pay the insurance company directly, do you set up some kind of automatic payment from your business account? I'm worried about missing payments or having timing issues if I'm manually handling this each month. Also, does it matter if the insurance policy is technically in my personal name vs the business name for tax purposes?
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