Short answer: if you own more than 2% of an S corporation in Texas, 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 Texas 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.)
- $9,505a year of the lowest-cost Silver plan for a 40-year-old in the typical Texas county, 2027
- $1,454of Social Security and Medicare tax a Texas 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
- $2.65Mof revenue before a Texas S corporation owes any franchise tax, on reports due in 2026 and 2027
How the Money Moves in Texas
- Buy the planAny of the 13 insurers on the Texas marketplace, or a private plan, in your name or the company’s.
- The S corp pays$656 a month for a 40-year-old’s cheapest 2027 Silver plan in Houston, paid or reimbursed by the company.
- Payroll adds it$7,877 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 $7,877 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 Houston that mistake costs the whole $7,877 and roughly $1,890 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 Texas 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 Houston plan above, a salary of $7,877 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 Texas family of four’s typical lowest-cost Silver plan is $2,533 a month, $30,390 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 Texas for 2027
| Household | Per month | Deductible per year | Federal tax saved at 22% | At 24% |
|---|---|---|---|---|
| One adult, 40 | $792 | $9,505 | $2,091 | $2,281 |
| Two adults, 40, and two children | $2,533 | $30,390 | $6,686 | $7,294 |
Texas has no personal income tax. Since 2019 the state constitution has barred a tax on the net incomes of individuals, including a partner’s share of partnership income (Article 8, Section 24-a), so the deduction saves federal tax only. The marketplace in Texas has 13 insurers for 2027, a median of 50 plan options per county, and no PPO in any of its 254 counties: every plan is an EPO, HMO or POS. 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 Texas
| Where | Lowest Silver, per month | Deductible per year | Federal tax saved at 24% | Payroll tax not charged |
|---|---|---|---|---|
| Houston (Harris County) | $656 | $7,877 | $1,890 | $1,205 |
| Dallas (Dallas County) | $747 | $8,959 | $2,150 | $1,371 |
| Fort Worth (Tarrant County) | $754 | $9,046 | $2,171 | $1,384 |
| San Antonio (Bexar County) | $723 | $8,680 | $2,083 | $1,328 |
| Austin (Travis County) | $723 | $8,670 | $2,081 | $1,327 |
The Texas Franchise Tax and Your Premiums
No Texas income tax does not mean no Texas tax on the company. An S corporation is a taxable entity for the franchise tax, at 0.75% of taxable margin (0.375% for retail and wholesale). For reports due in 2026 and 2027 a company with $2.65 million or less of total revenue owes nothing, and that covers most owner-run S corporations.
Above that line, a company that works out its margin with the compensation deduction may subtract wages (Medicare wages, up to $480,000 a person) and the cost of the benefits it gives its officers, owners and employees, health care included (Tax Code section 171.1013). Premiums run through the company count toward that deduction as well as toward yours.
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Sole proprietor, partner or C corporation owner instead? The rules differ: see the self-employed health insurance deduction in Texas and how each kind of business handles owner health insurance. With staff in Texas, see S corp owners in Texas and ICHRA for small businesses.
Before the year closes: the year-end checklist, every date in order. Tax professionals with Texas clients: a printable one-page Texas handout.
Common Questions
Can an S corp owner deduct health insurance in Texas?
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. Texas 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 Houston that is $7,877 a year on the cheapest Silver plan for a 40-year-old.
Does the Texas franchise tax change the S corp health insurance deduction?
No, the federal deduction works the same way. An S corporation with $2.65 million or less of total revenue owes no franchise tax on reports due in 2026 and 2027; above that, health care it provides its owners and employees counts in the compensation deduction (Tax Code section 171.1013).
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)
- Texas Constitution, Article 8, Section 24-a
- CMS, Plan Year 2027 Qualified Health Plan Landscape file
- HHS, 2026 poverty guidelines (2027 coverage)
- Social Security Administration, 2027 fact sheet (wage base)
- Texas Tax Code, Chapter 171 (franchise tax)
- Texas Comptroller, Franchise Tax (2026-2027 thresholds)