FTB follows the relaxed rules for the above the line SE health insurance deduction

The FTB is following the IRS's new guidance on when a 2% S corporation shareholder/employee may claim the above the line deduction for self-employed (SE) health insurance premiums that are paid or reimbursed by the S corporation and included in the shareholder/employee's wages. Under the new IRS guidance, if a 2% shareholder/employee meets certain requirements, he or she may claim a SE health insurance deduction for the current year and file refund claims for prior years that are not barred by the statute of limitations. (IRS Notice 2008-1 (December 13, 2007) 2008-2 IRB; IRC §162(l); R&TC §17273; E-mail to Spidell Publishing, Inc. on December 31, 2007)

A little more than a year and a half ago, the IRS told 2% S corporation shareholders/employees that if they purchased health insurance in their own names — rather than in the name of the S corporation — they would not be able to claim the deduction for SE health insurance premiums. (May 15, 2006, IRS Headliner (Volume 163) clarifying Chief Counsel Advice (CCA) 200524001) The IRS has renounced that guidance in IRS Notice 2008-1.