The S-Corp Health Insurance Deduction in Delaware

Short answer: if you own more than 2% of an S corporation in Delaware, the company pays or reimburses your health insurance premiums and puts them in Box 1 of your W-2 as wages, but not in the Social Security and Medicare boxes. You then take them back off your income as the self-employed health insurance deduction, on Form 7206 and Schedule 1, line 17. Delaware starts from federal adjusted gross income, so the deduction also lowers your Delaware tax: 6.6% of it above $60,000 of taxable income, 5.55% just below. (Reviewed November 2026 by Daniel Griffin, licensed independent advisor, NPN #22052447. Not tax advice; confirm with your tax preparer.)

• $10,427a year of the lowest-cost Silver plan for a 40-year-old in the typical Delaware county, 2027
• $1,595of Social Security and Medicare tax a Delaware owner skips on it, against the same amount paid as salary under $192,300
• Box 1where those premiums land on your W-2; Boxes 3 and 5 stay clear of them
• 6.6%Delaware’s top rate, above $60,000 of taxable income

How the Money Moves in Delaware

1. Buy the planAny of the 2 insurers on the Delaware marketplace, or a private plan, in your name or the company’s.
2. The S corp pays$869 a month for a 40-year-old’s cheapest 2027 Silver plan in Wilmington, paid or reimbursed by the company.
3. Payroll adds it$10,427 a year goes into W-2 Box 1 wages, not Boxes 3 and 5.
4. Form 7206The deduction is worked out there, capped at your Medicare wages.
5. Schedule 1Line 17: the $10,427 comes back off your income.

A more-than-2% shareholder is treated like a partner for fringe benefits, so the premiums cannot be a tax-free benefit the way they are for staff. IRS Notice 2008-1 is the route around that: wages for income tax, left out of Social Security and Medicare wages, then deducted under section 162(l).

The Cap Most Owners Miss

The deduction cannot be more than your earned income from the S corporation, which for a more-than-2% shareholder means wages as defined for Social Security and Medicare tax (section 162(l)(5)), Box 5 of the W-2. The premiums are in Box 1 but not Box 5, so they never raise the cap, and an owner who takes no salary gets no deduction at all. For the Wilmington plan above, a salary of $10,427 or more keeps every dollar deductible.

Three More Rules

• The spouse ruleNo deduction for any month you could join a subsidized employer plan, yours or your spouse’s, even if you did not enroll.
• Family countsYour spouse, dependents and any child under 27 at year end are covered; a Delaware family of four’s typical lowest-cost Silver plan is $2,778 a month, $33,338 a year to deduct. A spouse, child, grandchild or parent of the owner counts as a 2% shareholder too.
• Marketplace creditOnly the premium you pay after any premium tax credit is deductible. Above $63,840 of income for one person there is no 2027 credit, so the full premium counts.

What It Is Worth in Delaware for 2027

Delaware starts from federal adjusted gross income (30 Del. C. § 1105) and taxes it at rates from 2.2% up to 6.6% above $60,000 of taxable income (§ 1102), so the deduction lowers your Delaware tax too. The marketplace in Delaware has 2 insurers for 2027, a median of 29 plan options per county, and a PPO in every one of its 3 counties. Above $63,840 of household income for one person ($132,000 for a family of four) there is no premium tax credit, so the deduction carries the full saving.

What It Saves Across Delaware

Want a PPO? In Wilmington the cheapest Silver PPO for a 40-year-old is $941 a month, against $869 for the cheapest Silver plan of any kind. The extra $868 a year is deductible too, which at 24% trims it to about $660.

Delaware: 6.6% Above $60,000

Delaware begins with federal adjusted gross income, so the deduction carries straight through. The brackets climb from 2.2% to 5.55% between $25,000 and $60,000 of taxable income and 6.6% above that, so the premiums the company runs through payroll come off income taxed at 5.55% or 6.6% for most owners, on top of the federal saving.

Sole proprietor, partner or C corporation owner instead? The rules differ: see the self-employed health insurance deduction in Delaware and how each kind of business handles owner health insurance. With staff in Delaware, see S corp owners in Delaware and ICHRA for small businesses.

Before the year closes: the year-end checklist, every date in order. Tax professionals with Delaware clients: a printable one-page Delaware handout.

Common Questions

Can an S corp owner deduct health insurance in Delaware?

Yes, if you own more than 2% and the S corporation pays or reimburses the premiums and reports them in Box 1 of your W-2. You deduct them on Form 7206 and Schedule 1, line 17. Delaware starts from federal adjusted gross income, so the deduction also lowers your Delaware tax: 6.6% of it above $60,000 of taxable income, 5.55% just below.

What if I paid the premiums from my personal account?

Have the S corporation reimburse you and add the amount to your W-2 before it is issued. A policy you pay yourself with no payment or reimbursement by the company gets no deduction; in Wilmington that is $10,427 a year on the cheapest Silver plan for a 40-year-old.

Does the S corp health insurance deduction lower Delaware tax?

Yes. Delaware taxable income starts from federal adjusted gross income, which the deduction reduces, and the top rate is 6.6% above $60,000 of taxable income.

Sources

• IRS, Instructions for Form 7206 (2025)
• IRS, Notice 2008-1 (2-percent S corporation shareholders)
• 26 U.S. Code section 162(l)
• IRS, Publication 974 (premium tax credit)
• Delaware Code, Title 30, § 1102 (rates)
• CMS, Plan Year 2027 Qualified Health Plan Landscape file
• HHS, 2026 poverty guidelines (2027 coverage)
• Social Security Administration, 2027 fact sheet (wage base)
• Delaware Code, Title 30, § 1105 (taxable income starts from federal adjusted gross income)