S Corporation Health Insurance Deduction

IRS Health Insurance Deduction Rules: Sole Proprietors vs. S Corp Shareholders

In Chief Counsel Advice (CCA) 200524001, the IRS concluded that a sole proprietor purchasing health insurance in his or her own name can treat the insurance as if purchased in the name of the business. Assuming that the proprietor meets the requirements of IRC Sec. 162(l) , he or she can claim an above-the-line deduction for the insurance premiums.

But in an article dated 5/15/06 and appearing at http://www.irs.gov/businesses/small/article/0,,id=157049,00.html , the IRS notes that the results change if a sole S corporation shareholder/employee purchases the health insurance in his or her own name. In that case, the S corporation has not established a plan to provide medical care coverage, the shareholder is not treated as self-employed, and the shareholder is not eligible for the Section 162(l) above-the-line deduction. Instead, the shareholder can deduct the health insurance premium as an itemized deduction subject to the 7.5% of AGI limitation.

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.