IRS Liberalizes Health Insurance for S-Corp Owners

The IRS has come out with their first Revenue Ruling of 2008.  It has an early Christmas present for S-corporation owners.

For those not familiar with S-corps, you should read my post on it first.

For those that are, you know that more than 2% owner-employees of S-corps are denied the use of any tax-free fringe benefits.  There is a specific exemption for health insurance premiums.  The S-corporation must include the value of the premiums as wages for income tax purposes (but not payroll tax purposes) on the owner's W-2.  The owner then takes a deduction for health insurance premiums as if he were a partner.

One wrinkle that has come up in recent years has been the treatment of individual-market health insurance plans obtained by the owner (as opposed to those plans directly sponsored by the S-corp).  The thinking was that since these were not health care plans sponsored by the company, this little tax shuffle was unavailable.

Not anymore.

Now, a more than 2% shareholder-employee can get reimbursed by the S-corp for his premiums, and then do the add-in/back-out method employed above.  This revenue ruling truly levels the playing field in this area between S-corps and corporations.

Comments

[sj]

This health insruance ruling is this appliable for 2007 tax year also or it is from 2008 onwards