The S-Corp Health Insurance Deduction in Virginia

Short answer: if you own more than 2% of an S corporation in Virginia, 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. Virginia starts from federal adjusted gross income, so the deduction also lowers your Virginia tax, at 5.75% for most owners. (Reviewed November 2026 by Daniel Griffin, licensed independent advisor, NPN #22052447. Not tax advice; confirm with your tax preparer.)

• $6,062a year of Anthem’s lowest-cost 2027 Silver plan for a 40-year-old in Northern Virginia
• $927of Social Security and Medicare tax a Virginia 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
• 5.75%Virginia’s top rate, above $17,000 of taxable income

How the Money Moves in Virginia

1. Buy the planA Virginia’s Insurance Marketplace plan or a private plan, in your name or the company’s.
2. The S corp pays$505 a month for a 40-year-old’s cheapest 2027 Silver plan in Northern Virginia, paid or reimbursed by the company.
3. Payroll adds it$6,062 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 $6,062 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 Northern Virginia plan above, a salary of $6,062 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 Virginia family of four’s typical lowest-cost Silver plan is $1,615 a month, $19,381 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 Virginia for 2027

Virginia taxable income starts from federal adjusted gross income (Code of Virginia § 58.1-322) and is taxed at 2%, 3%, 5% and 5.75% above $17,000 (§ 58.1-320), so the deduction lowers your Virginia tax too, at 5.75% for most owners. Virginia runs its own marketplace, Virginia’s Insurance Marketplace, so the federal plan file behind the other states’ numbers on this site does not cover it. The prices here are Anthem Blue Cross and Blue Shield’s 2027 rates by rating area, one of several insurers on Virginia’s Insurance Marketplace. 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 Virginia

Virginia: 5.75% Above $17,000

Virginia begins with federal adjusted gross income on Form 760, so the deduction carries straight through. Its brackets are small: 2% to $3,000, 3% to $5,000, 5% to $17,000 and 5.75% above that, so for an owner on a real salary the whole deduction comes off income taxed at 5.75%.

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

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

Common Questions

Can an S corp owner deduct health insurance in Virginia?

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. Virginia starts from federal adjusted gross income, so the deduction also lowers your Virginia tax, at 5.75% for most owners.

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 Northern Virginia that is $6,062 a year on the cheapest Silver plan for a 40-year-old.

Does the S corp health insurance deduction lower Virginia tax?

Yes. Virginia taxable income starts from federal adjusted gross income, which the deduction reduces, and the rate is 5.75% above $17,000 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)
• Code of Virginia § 58.1-320 (rates)
• CMS, Plan Year 2027 Qualified Health Plan Landscape file
• HHS, 2026 poverty guidelines (2027 coverage)
• Social Security Administration, 2027 fact sheet (wage base)
• Code of Virginia § 58.1-322 (Virginia taxable income starts from federal adjusted gross income)
• Anthem Blue Cross and Blue Shield, 2027 individual rates by rating area (quoted October 2026)