Short answer: if you own more than 2% of an S corporation in South Dakota, 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. In South Dakota there is no state income tax, so the saving is federal. (Reviewed November 2026 by Daniel Griffin, licensed independent advisor, NPN #22052447. Not tax advice; confirm with your tax preparer.)
- $9,203a year of the lowest-cost Silver plan for a 40-year-old in the typical South Dakota county, 2027
- $1,408of Social Security and Medicare tax a South Dakota 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
- $0South Dakota income tax on you or the S corporation
How the Money Moves in South Dakota
- Buy the planAny of the 3 insurers on the South Dakota marketplace, or a private plan, in your name or the company’s.
- The S corp pays$561 a month for a 40-year-old’s cheapest 2027 Silver plan in Sioux Falls, paid or reimbursed by the company.
- Payroll adds it$6,733 a year goes into W-2 Box 1 wages, not Boxes 3 and 5.
- Form 7206The deduction is worked out there, capped at your Medicare wages.
- Schedule 1Line 17: the $6,733 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).
Paying the premiums from your personal account and never running them through the company. The IRS’s own example in Notice 2008-1 is a shareholder who pays for a policy in their own name with no reimbursement: no plan established by the S corporation, no deduction.
In Sioux Falls that mistake costs the whole $6,733 and roughly $1,616 of federal income tax at 24%. The fix has a deadline: the company pays or reimburses the premiums by December 31 and adds them to your W-2. The year-end checklist has every date in order.
Work out your deduction
Form 7206-style worksheet. An estimate, not a tax return.Presets: the typical lowest-cost South Dakota Silver plan for 2027. Line 10: Social Security tax to the $192,300 wage base, Medicare 2.9%, plus 0.9% over $200,000. Nothing you type leaves this page until you send it.
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 Sioux Falls plan above, a salary of $6,733 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 South Dakota family of four’s typical lowest-cost Silver plan is $2,452 a month, $29,423 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 South Dakota for 2027
| Household | Per month | Deductible per year | Federal tax saved at 22% | At 24% |
|---|---|---|---|---|
| One adult, 40 | $767 | $9,203 | $2,025 | $2,209 |
| Two adults, 40, and two children | $2,452 | $29,423 | $6,473 | $7,061 |
South Dakota has no personal income tax and no corporate income tax: the Department of Revenue says the state has no corporate, unitary or personal income tax. For an owner-run business the federal saving is the whole picture. The marketplace in South Dakota has 3 insurers for 2027, a median of 25 plan options per county, and a PPO in every one of its 66 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 South Dakota
| Where | Lowest Silver, per month | Deductible per year | Federal tax saved at 24% | Payroll tax not charged |
|---|---|---|---|---|
| Sioux Falls (Minnehaha County) | $561 | $6,733 | $1,616 | $1,030 |
| Sioux Falls suburbs (Lincoln County) | $561 | $6,733 | $1,616 | $1,030 |
| Rapid City (Pennington County) | $799 | $9,592 | $2,302 | $1,468 |
| Aberdeen (Brown County) | $606 | $7,276 | $1,746 | $1,113 |
| Brookings (Brookings County) | $760 | $9,116 | $2,188 | $1,395 |
Want a PPO? In Sioux Falls the cheapest Silver PPO for a 40-year-old is $719 a month, against $561 for the cheapest Silver plan of any kind. The extra $1,889 a year is deductible too, which at 24% trims it to about $1,436.
No Company-Level Tax to Plan Around
South Dakota does not impose a corporate income tax, so there is no state franchise or excise tax on an S corporation’s profit to weigh against the premiums. Banks and other financial institutions pay a separate bank franchise tax; an ordinary owner-run business does not.
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Sole proprietor, partner or C corporation owner instead? The rules differ: see the self-employed health insurance deduction in South Dakota and how each kind of business handles owner health insurance. With staff in South Dakota, see S corp owners in South Dakota and ICHRA for small businesses.
Before the year closes: the year-end checklist, every date in order. Tax professionals with South Dakota clients: a printable one-page South Dakota handout.
Common Questions
Can an S corp owner deduct health insurance in South Dakota?
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. South Dakota has no state income tax, so the saving is federal.
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 Sioux Falls that is $6,733 a year on the cheapest Silver plan for a 40-year-old.
Does South Dakota tax an S corporation’s income?
No. South Dakota has no corporate, unitary or personal income tax. Banks and financial institutions pay a bank franchise tax; other businesses do not.
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)
- South Dakota Department of Revenue, Sales and Use Tax Guide (July 2026), page 4
- CMS, Plan Year 2027 Qualified Health Plan Landscape file
- HHS, 2026 poverty guidelines (2027 coverage)
- Social Security Administration, 2027 fact sheet (wage base)
- South Dakota Department of Revenue, Business Tax