If you own more than 2 percent of an S corporation, your dental, vision, and Medicare premiums can qualify for the same valuable tax treatment as your major medical insurance premiums. Many owners handle the medical piece correctly and simply forget the rest qualifies too.
The process is the same three steps for all qualifying premiums. First, your S corporation must either pay the premiums directly or reimburse you after you provide proof of payment. Second, the corporation includes the premiums in box 1 of your Form W-2, but not in box 3 or 5. Third, you claim the combined medical, dental, vision, and qualifying Medicare premiums as the self-employed health insurance deduction on your individual return.
Qualifying Medicare costs can include Part B, Part D, Medicare Advantage, Medigap, and certain voluntarily paid Part A premiums. Even when Social Security deducts your Medicare premiums directly from your benefits, your corporation can still reimburse you for them as long as you provide documentation, such as your Form SSA-1099 or a Medicare statement.
Two limitations are worth flagging. You generally cannot claim the deduction for any month when you or your spouse qualified for subsidized health coverage through another employer. And your total deduction cannot exceed your box 5 Medicare wages from the S corporation, so your salary needs to be high enough to cover the combined total of all medical, dental, vision, and Medicare premiums you want to deduct.
One more detail that catches owners off guard: qualifying premiums paid for relatives who work for the corporation may require the same W-2 treatment, and the family attribution rules can apply even when those relatives own no stock directly. If you have family on payroll, it is worth checking whether their coverage is being handled the same careful way.
What this means for you: Make sure dental, vision, and Medicare premiums are being run through the same three-step process as your major medical. It is an easy thing to overlook and an easy one to fix before year-end.
