The S-Corp Health Insurance Deduction in Michigan

Short answer: if you own more than 2% of an S corporation in Michigan, 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. Michigan starts from federal adjusted gross income, so the deduction also lowers your state tax at the flat 4.25% rate (2026). (Reviewed November 2026 by Daniel Griffin, licensed independent advisor, NPN #22052447. Not tax advice; confirm with your tax preparer.)

• $7,757a year of the lowest-cost Silver plan for a 40-year-old in the typical Michigan county, 2027
• $1,187of Social Security and Medicare tax a Michigan 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
• 4.25%Michigan’s flat 2026 rate; the deduction comes off it too

How the Money Moves in Michigan

1. Buy the planAny of the 7 insurers on the Michigan marketplace, or a private plan, in your name or the company’s.
2. The S corp pays$572 a month for a 40-year-old’s cheapest 2027 Silver plan in Detroit, paid or reimbursed by the company.
3. Payroll adds it$6,869 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 $6,869 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 Detroit plan above, a salary of $6,869 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 Michigan family of four’s typical lowest-cost Silver plan is $2,067 a month, $24,801 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 Michigan for 2027

Michigan’s return begins with your federal adjusted gross income and taxes it at a flat 4.25% for 2026, so the deduction lowers your Michigan tax as well. The marketplace in Michigan has 7 insurers for 2027, a median of 44 plan options per county, and a PPO in 72 of its 83 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 Michigan

Want a PPO? In Detroit the cheapest Silver PPO for a 40-year-old is $885 a month, against $572 for the cheapest Silver plan of any kind. The extra $3,749 a year is deductible too, which at 24% trims it to about $2,850.

How Michigan Sets the Rate Each Year

A 2015 Michigan law cuts the income tax rate for a year when general fund revenue grows faster than inflation, and a 2024 Court of Appeals decision made any such cut last one year. For 2026, revenue fell 1.56% against 2.70% inflation, so the rate stays 4.25%; the 2027 rate is set the same way after the state’s fiscal 2026 report. At 4.25%, a year of the typical lowest-cost Silver plan, $7,757, saves $330 in Michigan tax.

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

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

Common Questions

Can an S corp owner deduct health insurance in Michigan?

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. Michigan starts from federal adjusted gross income, so the deduction also lowers your state tax at the flat 4.25% rate (2026).

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 Detroit that is $6,869 a year on the cheapest Silver plan for a 40-year-old.

Will Michigan’s income tax rate change for 2027?

It might. Michigan law lowers the rate for a year when general fund revenue grows faster than inflation; for 2026 it did not, so the rate is 4.25%. The 2027 rate is decided after the state’s fiscal 2026 financial report.

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)
• Michigan Department of Treasury, State Individual Income Tax Rate for 2026 Tax Year Determined (April 15, 2026)
• CMS, Plan Year 2027 Qualified Health Plan Landscape file
• HHS, 2026 poverty guidelines (2027 coverage)
• Social Security Administration, 2027 fact sheet (wage base)
• Michigan Department of Treasury, MI-1040 instructions (2025)