Can an 'S' Corporation Deduct Medical Expenses for Its Only Officer?

The "S" corporation business structure allows significant latitude concerning the deduction of health insurance costs for the owners/shareholders of the corporation. With an owner who is also an officer of the company, tax rules dictate how the compensation for the owner must be structured and how employee benefits accounted for tax-wise. The health insurance of the single officer of an "S" corporation would be a deductible expense.

With an "S" corporation, the tax rules require that a shareholder of the company that works as a manager of the business be classified also as an employee and be paid a competitive wage. The purpose of the rule is to ensure that Social Security and Medicare taxes are paid on the owner's behalf for the work put in as a manager. As the only officer -- which is a job title -- of the company, an owner-shareholder will also be a salaried employee.

A small-business "S" corporation would deduct the costs of health insurance benefits paid for employees. If the company has more than one employee, the cost of the insurance for the officer-owner would be deducted along with the insurance premiums paid for all of the employees covered under the plan. The corporation would include the health insurance costs as a business expense when completing the corporate tax return. If the company has a single employee, who is also the officer of the corporation and an owner, the employee status of the officer still allows the health insurance deduction.

Health insurance is deductible for any S Corporation shareholder who owns more than 2 percent of the company and is not covered by other health insurance. While an officer of the company would be covered as an employee and the cost of health insurance deducted as an employee benefit, the deduction can be used by other owners if the company pays for the health insurance. For non-employee owners, insurance coverage can be in the business name, or an owner can buy private coverage and be reimbursed by the company.

The "S" Corporation election requires that business profits or losses be passed through to the owners to claim on their individual tax returns. An "S" corporation does not pay business income taxes. The salary and costs of health insurance paid on behalf of an employee-officer would be deducted from revenue before the net income is reported to the corporation owners for their tax reporting.