You Make the Call - July 3, 2025

Question: Amy is a greater-than-2%-shareholder in an S corporation. Amy paid for her health insurance premiums personally, however, she sought reimbursement from the S corporation, which included those amounts in wages on Form W-2, Wage and Tax Statement, in Box 1. Can Amy deduct the health insurance costs?

Answer: Amy can deduct the premiums she paid personally since they are reimbursed by the S corporation assuming she has enough earned income from the business.

For S corporation shareholders, earned income includes the individual’s wages, as defined in §3121 for purposes of Federal Insurance Contributions Act (FICA) taxes (i.e., Social Security and Medicare payroll taxes), from the S corporation [§162(l)(5)(A)].

Amy deducts these amounts on Form 1040, Schedule 1, Additional Income and Adjustments to Income, Line 17, Self-employed health insurance deduction. The deduction itself is calculated on Form 7206, Self-Employed Health Insurance Deduction.