Tax treatment of health insurance for owner/employees of S-Corporations has always been, and continues to be, a confusing issue.
The controlling authority is Rev. Proc. 2014-41 that provides guidance to compute the business deduction (IRC §162) for health insurance costs for self-employed individuals and the premium tax credit allowed under (IRC§ 36B).
IRS Notice 2015-17 provides assurance that s-corporation owner employees will not be penalized in 2015 for known discrepancies in current tax law stemming from ACA.
The discussion focuses on how to consider the insurance expense as a business deduction on the Form 1120S, then add it to the owner/employees’ wages on Form W2, and then finally how to take the self-employed health insurance premium tax credit on the individual tax return.
Separately, a question of whether the individual may qualify for a premium subsidy through the individual health insurance marketplace is a separate issue that depends in part on the S-corporations group health insurance policy (or lack of such a policy).