If you're running your construction or contractor business as an S Corporation and paying for your own health insurance, there is some good news for 2026: not much has changed on the tax savings for your health insurance payments.

S Corporation owners who own more than 2% of the company can generally still have the business pay or reimburse their health insurance premiums and then receive a deduction on their personal tax return. The important part is making sure everything is handled correctly between the business, payroll and your personal tax return.

Your bookkeeper, payroll provider and tax accountant need to be on the same page. They likely are, but check.

How Does the Health Insurance Deduction Work?

There are three steps to getting the deduction handled correctly.

  1. Have the S Corporation pay or reimburse the health insurance. The company can pay the insurance company directly, or you can pay the premiums personally and have the company reimburse you.

  2. Make sure the premiums are reported properly through payroll. The health insurance needs to be included in your W-2 compensation in the proper way. Simply paying the premiums personally won't allow for the deduction on your personal return - this is where your payroll provider and accounting team need to coordinate.

  3. Claim the health insurance deduction on your personal tax return. Assuming you meet the other requirements, the premiums can then be deducted as self-employed health insurance on your Form 1040.

For example, let's say you pay $15,000 during the year for family health insurance. If you simply pay the $15,000 personally and never run it through your S Corporation, you won't get the deduction.

Instead, you could provide the premium information to the company, have the S Corporation reimburse you for the $15,000, and make sure the reimbursement is properly included in your payroll reporting. Your tax preparer can then determine the deduction on your personal return.

Two Important Requirements

Even if you follow the steps above, there are two additional requirements to keep in mind.

The first is other employer-subsidized health insurance. If you or your spouse are eligible to participate in a subsidized health plan through another employer, you generally can't take the self-employed health insurance deduction for the months you're eligible for that coverage.

For example, assume your spouse works for another company and is eligible for an employer-paid family health plan. You decide not to use their insurance because you prefer the plan you're already on. The fact that you chose not to enroll doesn't solve the problem, and you won't be eligible for the deduction for those months.

The second hurdle is that your deduction is limited by the qualifying earned income you receive from the S Corporation.

For example, if your S Corporation pays $15,000 of health insurance but you only have $10,000 of qualifying earned income from the company, you generally aren't going to receive a $15,000 deduction.

There is a lot of detail that goes into the above steps, which your bookkeeper or accountant will take care of. The important thing as a business owner is to make sure your payroll and health insurance are reviewed together rather than waiting until your tax return is being prepared.

What if a Family Member Works for the Company?

This is another area that can get missed. The tax law has something called Section 318 attribution, which basically means that certain family members can be treated as owning stock in your S Corporation even when their name isn't actually on any of the shares.

If your spouse, parent, child or another close family member works for your company, don't automatically assume they're treated exactly like any other employee for health insurance purposes. Depending on the family relationship, the tax rules may treat them as a more-than-2% shareholder as well.

For example, if you own 100% of the company and your daughter works for the business, the health insurance paid for her may need to be handled under the shareholder health insurance rules rather than the normal employee rules.

The attribution rules can get more specific depending on the relationship, so this is another area where your tax preparer should confirm how the employee needs to be treated.

What About Other Employees?

The rules are different for employees who aren't treated as owners.

Most of the construction companies we work with have fewer than 50 full-time employees, and businesses under that threshold generally aren't required under the federal employer mandate to provide health insurance to their employees.

If you do decide to provide benefits, though, you need to make sure you're doing it correctly.

For example, don't assume that because the S Corporation can reimburse you as the owner for an individual health insurance policy, you can simply start reimbursing employees for their personal insurance premiums the same way.

There are approved arrangements that can allow a company to help employees with individually purchased coverage, but those arrangements have their own rules and need to be set up correctly.

If you have a traditional group health insurance plan, the company can also generally pay for coverage for rank-and-file employees, while the more-than-2% owners still have their portion handled differently through the S Corporation owner rules.

What if Your Employees Don't Have Health Insurance?

One question that comes up is whether providing health insurance to yourself as an S Corporation owner means you also have to provide insurance to all of your employees.

For many small S Corporations, the answer is generally no.

As of 2026, the IRS has not begun enforcing the Affordable Care Act's nondiscrimination rules for insured group health plans that were supposed to restrict plans from favoring highly compensated employees.

That doesn't mean every health insurance arrangement can be set up however you want. Different types of plans and reimbursement arrangements have their own requirements. For example, a QSEHRA generally has to be offered on consistent terms to eligible employees.

But simply having the S Corporation properly handle health insurance for a more-than-2% owner does not automatically mean that every employee has to receive the exact same benefit.

What to do about it

You shouldn't have to worry about which form reports what. Your bookkeeper and accountant will handle the specifics. 

But, if you're paying health insurance personally, make sure your bookkeeper knows about it. Your bookkeeper should also be communicating with your tax accountant or tax preparer as needed so the premiums are recorded correctly in the books, handled correctly through payroll, and ultimately make their way to your personal tax return.

Waiting until your tax return is being prepared to mention that you've been paying $15,000 or $20,000 a year for health insurance can make this much harder than it needs to be.

The S Corporation health insurance rules have quite a few specific requirements, and this article doesn't cover every detail or every situation. Make sure you consult with your tax preparer or accountant to confirm that you're following the applicable rules and receiving any deduction you're entitled to take.