On December 13,2007, the IRS issued guidance that allows S corporation shareholders with health insurance policies in their own names, rather than in the S corporation’s name, to deduct the premiums above-the-line under section 162(l). Under Notice 2008-1, S corporation shareholders may deduct premiums paid for themselves, their spouses and their dependents if:
- A two-percent or greater shareholder has earned income from the S corporation exceeding the total of all premiums paid;
- The shareholder is not eligible to participate in any subsidized health plan maintained by the shareholder’s or a spouse’s employer;
- The S corporation includes the premium cost in the shareholder’s Form W-2;
- The shareholder includes the premium cost in gross income on Form 1040;
- If the S Corporation reimburses the premiums, it must be in the same tax year.
Whether the policy is in the individual’s or S corporation’s name or who initially pays for the premiums are not the determining factors.
Amended returns may be filed for open years if these conditions are met and taxpayers did not take the 162(l) deduction. Write “Filed Pursuant to Notice 2008-1” at the top of the amended return