Are Life Insurance Premiums Tax Deductible for an S Corp?
Life insurance premiums are tax deductible for an S corporation -- sometimes. If the S corporation itself is not the beneficiary, the premiums are deductible. If the S corporation is the beneficiary, the premiums are not deductible. The S corporation must also sometimes report life insurance premiums as taxable wages paid to the employee.
Deductible Life Insurance Premiums
As long as employees are the beneficiaries, S corporations are allowed to deduct life insurance premiums. If the employee dies, the S corporation cannot receive any sort of compensation or payment from the life insurance plan. These life insurance premiums are viewed as a benefit paid on behalf of the employee, so they're deductible as an employee benefit. Deduct these life insurance premiums on line 18 of Form 1120-S along with other employee benefit premiums, such as health insurance and dental insurance.
Nondeductible Life Insurance Premiums Some S corporations take out life insurance premiums on behalf of their employees and the S corporation itself is the beneficiary. These are referred to as corporate-owned life insurance, or COLI for short. Although these insurance policies can greatly benefit a S corporation if it loses a key officer or director, the cost of monthly premiums is not deductible. On the upside, the S corporation isn't taxed on any life insurance proceeds and payments that it receives.
Life Insurance Premiums as Taxable Wages Most of the time, any life insurance premiums paid on behalf of S corporation employees aren't taxable to the employee. Like health insurance benefits, the S corporation can exclude them from the wages section of the employee's W-2. There are a few notable exceptions to this rule.
- To be excluded from wages, the S corporation must provide the life insurance to a group of employees rather than just a few key personnel. If the plan favors key employees, the S corporation must list premiums paid as wages.
- If the S corporation provides more than $50,000 worth of coverage for a single employee, the business has to report amounts paid for the coverage exceeding $50,000 as wages on the employee's W-2.