Short answer: if you own more than 2% of an S corporation in Tennessee, 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. Tennessee does not tax your wages, and the premiums can also trim the company’s Tennessee excise tax. (Reviewed November 2026 by Daniel Griffin, licensed independent advisor, NPN #22052447. Not tax advice; confirm with your tax preparer.)
- $8,846a year of the lowest-cost Silver plan for a 40-year-old in the typical Tennessee county, 2027
- $1,353of Social Security and Medicare tax a Tennessee 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
- 6.5%Tennessee excise tax the premiums come off when the S corporation pays them
How the Money Moves in Tennessee
- Buy the planAny of the 5 insurers on the Tennessee marketplace, or a private plan, in your name or the company’s.
- The S corp pays$869 a month for a 40-year-old’s cheapest 2027 Silver plan in Nashville, paid or reimbursed by the company.
- Payroll adds it$10,425 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 $10,425 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 Nashville that mistake costs the whole $10,425 and roughly $2,502 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 Tennessee 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 Nashville plan above, a salary of $10,425 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 Tennessee family of four’s typical lowest-cost Silver plan is $2,357 a month, $28,282 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 Tennessee for 2027
| Household | Per month | Deductible per year | Federal tax saved at 22% | At 24% |
|---|---|---|---|---|
| One adult, 40 | $737 | $8,846 | $1,946 | $2,123 |
| Two adults, 40, and two children | $2,357 | $28,282 | $6,222 | $6,788 |
Tennessee does not tax wages or earned income: an amendment voters approved in 2014 bars any state or local tax on payroll or earned personal income (Article II, Section 28). Your own saving is federal; the company can save on Tennessee’s business taxes, below. The marketplace in Tennessee has 5 insurers for 2027, a median of 68 plan options per county, and no PPO in any of its 95 counties: every plan is an EPO. 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 Tennessee
| Where | Lowest Silver, per month | Deductible per year | Federal tax saved at 24% | Payroll tax not charged |
|---|---|---|---|---|
| Memphis (Shelby County) | $708 | $8,493 | $2,038 | $1,299 |
| Nashville (Davidson County) | $869 | $10,425 | $2,502 | $1,595 |
| Knoxville (Knox County) | $696 | $8,351 | $2,004 | $1,278 |
| Chattanooga (Hamilton County) | $737 | $8,846 | $2,123 | $1,353 |
| Murfreesboro (Rutherford County) | $869 | $10,425 | $2,502 | $1,595 |
Tennessee Excise Tax: Where the Premiums Save Twice
Tennessee charges S corporations and LLCs a 6.5% excise tax on net earnings and a franchise tax of 0.25% of net worth (at least $100 a year). The excise tax starts from the company’s ordinary income on its federal Form 1120-S, and premiums the S corporation pays as your wages come off that figure first.
The first $50,000 of net earnings is exempt from the excise tax (tax years ending on or after December 31, 2024), so the second saving starts once the company earns more than that: on a year of the typical lowest-cost Silver plan, $8,846, it is about $575, on top of the federal income tax and payroll tax above.
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Sole proprietor, partner or C corporation owner instead? The rules differ: see the self-employed health insurance deduction in Tennessee and how each kind of business handles owner health insurance. With staff in Tennessee, see S corp owners in Tennessee and ICHRA for small businesses.
Before the year closes: the year-end checklist, every date in order. Tax professionals with Tennessee clients: a printable one-page Tennessee handout.
Common Questions
Can an S corp owner deduct health insurance in Tennessee?
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. Tennessee does not tax your wages, and the premiums can also trim the company’s Tennessee excise tax.
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 Nashville that is $10,425 a year on the cheapest Silver plan for a 40-year-old.
Do health insurance premiums lower Tennessee excise tax for an S corp?
They can. Tennessee’s 6.5% excise tax starts from the S corporation’s federal ordinary income, which the premiums it pays as your wages reduce. The first $50,000 of net earnings is exempt, so the saving applies above that.
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)
- Tennessee Senate Joint Resolution 1 (2013), the payroll and earned-income amendment to Article II, Section 28 approved in 2014
- CMS, Plan Year 2027 Qualified Health Plan Landscape file
- HHS, 2026 poverty guidelines (2027 coverage)
- Social Security Administration, 2027 fact sheet (wage base)
- Tennessee Department of Revenue, Franchise and Excise Tax: due dates and tax rates
- Tennessee Department of Revenue, Franchise and Excise Tax Manual (June 2026)