For S corps
The IRS stipulates that health insurance premiums should be included in an S corp shareholder's wages if they own 2% or more of the S corp. This is often the case for multiple types of benefits offered to regular employees.
Why is this the case? Because the IRS notes that shareholder-employees of S corps have a lot more power than regular employees. In an effort to curve loopholes and inequitable benefits, the IRS has created specific rules for each type of benefit. In this case, health insurance premiums need to be added back to wages in order for it to be a deduction.
What if I didn't do that?
That's okay! We will work with you. We will include your health insurance premiums in "Employee Benefits" on Line 18 Form 1120S.
We do ask that you set this up correctly for 2023. Gusto (as our main payroll provider and partner) supports health insurance benefits. What that looks like: wherever you're paying for health insurance, we will include the monthly premiums paid as part of total wages.
If you don't use Gusto, you'll need to log into your payroll provider to determine how to properly report those amounts. Because we don't have support this provider, we suggest checking out their help center first. If you're still having trouble, we can try to help you navigate this. In order to do so, we'll need screenshots of your dashboard.
For Sole props
Health insurance premiums can be paid through your business account, but there are a couple of things to note about the tax implications of this:
- While your business paid for the premiums, the expense is actually deductible on Schedule 1, Part II Line 17. During tax return time, we will move the expense out of your business profit and onto this schedule.
- Self-employed health insurance premiums will reduce your taxable income; this number is used to calculate your income tax.
- The expense will not be included in the calculation of self-employment tax. While your Profit & Loss will be a certain amount, we will take your Profit and add back the health insurance expenses to get a greater value to calculate the estimated amount of self-employment taxes you may owe.
- Self-employment taxes are ~15.3% of your business profit. This is an additional tax on top of income tax.
Health insurance premiums can be costly so we understand why you'd like the business account to pay for this. We still advise that this be paid through a personal account to prevent any confusion.