Tax Effect for S-Corp Owner

Delta76

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Tax questions that I could use some help with. I have an S-Corp owner who has an ill wife that caused them to reach the top rate table. They have two dependents in which they pay $500 for them. There are savings to going individual with the kids, but I need to know the tax consquences. I realize they would pay FICA on the individual premium for the kids, but would they also have to pay income taxes. I can't tell if it fits the description of the "Self Employed Health Insurance Deduction."

I know it would be an above the line deduction if the owner had an individual plan, but I don't know know if it works if the owner is on the group plan and the dependents are on their own. Anyone know?
 
No, it's not an "above the line" deduction for an individual (or group) plan for a more than 2% shareholder of an S-corp.

All of the premiums (including dependents) are deductible in this scenario under the health insurance deduction for self-employed individuals (even though he/she is not technically self-employed).
 
Thanks for the help, this is an area I'm still too ignorant on. If you don't mind, let me ask you one more question. I don't understand what the part in red is saying. The individual plan would be in the name of the owner of the S-Corp, does that eliminate the ability to take the deduction? Here is the text from the IRS website:

A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

The insurance plan must be established under your business. Partners and more-than-2% S corporation shareholders can claim the self-employed health insurance deduction only if the policy is in the name of the partnership or S corporation. For sole proprietors, the policy does not have to be in the name of the business if it is in the name of the sole proprietor.
You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amount in your gross income. Take the deduction on Form 1040, line 29.
 
Thanks for the help, this is an area I'm still too ignorant on. If you don't mind, let me ask you one more question. I don't understand what the part in red is saying. The individual plan would be in the name of the owner of the S-Corp, does that eliminate the ability to take the deduction? Here is the text from the IRS website:

A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

The insurance plan must be established under your business. Partners and more-than-2% S corporation shareholders can claim the self-employed health insurance deduction only if the policy is in the name of the partnership or S corporation. For sole proprietors, the policy does not have to be in the name of the business if it is in the name of the sole proprietor.
You may be allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amount in your gross income. Take the deduction on Form 1040, line 29.

IMO, the section in red is quite clear. What is the question? For a more in-depth discussion refer to Page 24 of IRS Publication 502 which can be accessed on the irs.gov website. See the section titled "Health Insurance Costs for Self-Employed Persons."
 
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