| How to account for Medical Premiums paid by an S Corporation for its Owners?
According to the IRS, if an S Corp pays or reimburses its 2% or greater Owners/Shareholders for the health insurance premiums, then, generally speaking,
"these premiums are not deductible by the S Corp unless is includes the value of the premium in Box 1 of your W-2 wages, but, these premiums are not subject to any other federal employment taxes."
When the value of these health insurance premiums are added in the gross wages of the owners/shareholder, the S Corporation may then deduct the same amount as an adjustment to gross income. Clearly, the net effect is the company deducts the value of the premiums as wages.
There is an added advantage to the owners of the S Corporation in that once the value of the premiums are added to the gross wages, this tends to increase the amount of a retirement plan contribution by the owners because these retirement contribution limits are related directly to the Corporation owners salary.
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