Short answer: if you own more than 2% of an S corporation, the company can pay or reimburse your health insurance premiums, but for this purpose the IRS treats you like a partner, not an employee. The premiums go into Box 1 of your W-2 as wages, but not into Boxes 3 and 5, so no Social Security or Medicare tax applies to them. You then deduct them on your own return as self-employed health insurance. The policy can be in your own name, as long as the corporation pays for it or reimburses you in the same year.
How the Money Moves
- Buy the plan. An individual plan in your own name works, from the marketplace or a private insurer, or the corporation can buy it directly.
- The S corporation pays. It pays the insurer, or it reimburses you during the same tax year.
- Payroll reports it. The premiums are added to your W-2 Box 1 wages, not to Box 3 or Box 5. Many payroll services also show the amount in Box 14 so your tax preparer can find it.
- You take the deduction. On your 1040, the premiums come off as self-employed health insurance (Form 7206), up to the wages the corporation pays you.
The result is that the premium avoids payroll tax at the company level and income tax at yours, as long as your salary from the corporation is large enough to absorb the deduction.
Setting up health insurance through your S corp?
Send your ZIP code. A licensed agent finds the individual plan, in your name, that the corporation will pay for.
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Who Counts as a 2% Shareholder
Anyone who owns more than 2% of the stock on any day of the year. Ownership is attributed within the family, so your spouse, children, grandchildren and parents are treated as owning your shares. A spouse on the payroll is handled the same way as you.
What the S Corporation Cannot Do for You
- No QSEHRA or ICHRA for owners. More-than-2% shareholders are not employees for these arrangements, so the company can offer them to staff but cannot cover you through them.
- No group plan just for you. Small-group plans generally need at least one enrolled employee who is not an owner or an owner’s spouse. With staff, a group plan is possible; without them, the individual plan above is the route.
- The month rule still applies. You cannot take the deduction for any month you were eligible for a subsidized plan through another employer, yours or your spouse’s.
S Corp Owners and the 2027 Tax Credit
The income the marketplace uses counts both your W-2 wages and your share of the company’s profit from your K-1. For 2027 coverage the credit stops at $63,840 of household income for one person and $132,000 for a family of four. If you are under the line and take both the deduction and a credit, each depends on the other; IRS Publication 974 has the worksheet that settles the two together.
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Common Questions
Can my S corporation pay for my health insurance?
Yes. It can pay the insurer or reimburse you for an individual plan in your own name. For a more-than-2% shareholder the premiums are reported as W-2 wages in Box 1, and you deduct them on your own return.
Are S corp owner health insurance premiums subject to payroll tax?
No. For a more-than-2% shareholder they are included in Box 1 wages for income tax but left out of Boxes 3 and 5, so no Social Security or Medicare tax applies to them.
Can an S corp owner use a QSEHRA or an ICHRA?
Not for themselves. More-than-2% shareholders are not treated as employees for those arrangements. The corporation can still offer them to employees who are not owners.
Does my S corp need a group plan to pay my premiums?
No. An individual policy in your name works, as long as the corporation pays the premiums or reimburses you during the same year and reports them on your W-2.
Sources
- IRS, S Corporation Compensation and Medical Insurance Issues.
- IRS Notice 2008-1: premiums for a 2% shareholder on a policy in the shareholder’s own name.
- IRS, Instructions for Form 7206, and Publication 974 (premium tax credit and the deduction together).
- IRS Notice 2017-67: who counts as an employee for a QSEHRA.
- Internal Revenue Code §§ 1372 and 318: 2% shareholders and family attribution.
- HHS 2026 poverty guidelines, 91 FR 1797: the 2027 tax-credit income limits.