medical insurance

According to the IRS, a 2-percent shareholder in an S corporation may be eligible for a deduction against Adjusted Gross income (AGI) for the cost of accident and health insurance premiums paid by the corporation. The deduction is equal to 100 percent of the amount paid for medical insurance for the shareholder, his or her spouse, and dependents and is reported as an adjustment to income on the shareholder’s Form 1040.

The deduction has two limitations:

• The deduction is not available for the calendar months in which the 2-percent shareholder or spouse is eligible to participate in another employer-subsidized health insurance plan; and,
• The deduction cannot exceed the taxpayer’s earned income derived from the trade or business that provides the health insurance plan. S corporation shareholders treat their social security wages from the S corporation as earning income for purposes of this limitation.

A 2-percent shareholder that meets the requirements is eligible for the deduction if the plan providing the medical care coverage is established by the S corporation, which means that:

• The S corporation pays the premiums for the accident and health insurance policy covering the 2-percent shareholder (and his or her spouse and dependents, if applicable) in […]