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Qualifying long term care insurance is part of the health insurance that can be excluded from employee wages and deducted by the corporation. See Accident and Health Benefits for details.
As you may know, benefits paid to more than 2% shareholders of the S corporation are generally not deductible by the corporation. See 2% Owners for more details.
Sec. 318. Constructive ownership of stock says:
"An individual shall be considered as owning the stock owned,directly or indirectly, by or for -(i) his spouse (other than a spouse who is legallyseparated from the individual under a decree of divorce orseparate maintenance), and(ii) his children, grandchildren, and parents."
So, your mother's benefits can not be deducted by the corporation and excluded from her wages (similar to yours) since she is considered as owning the shares that you, her child, own.
Of course, the corporation can pay the premium and include that as wages to your mother in order deduct those amounts the same as other wages paid to her. The only caution might be that her compensation for the work performed will have to remain "reasonable".
I hope this helps to know the rules for deducting benefits and the stock attribution rules; even though it may not be what you would have liked to hear.
Please ask if you need clarification. Thank you.
Your parent is considered to own the shares for income tax purposes ( "For purposes of those provisions of this subchapter to which the rules contained in this section are expressly made applicable") Sec. 318. Constructive ownership of stock
She does not actually have any rights of ownership in your shares. She does not own your company; but is treated as if she did for tax accounting for her benefits.
Indeed, your mother will have to include the health insurance premiums as wage income (like you do).
She may be entitled to the self employed health insurance adjustment to income, as you are, if she meets all the other requirements (but not to the extent they exceed her salary).
For a more comprehensive article see Deducting Health Insurance Premiums for S Corporation Shareholders
If she can not use the self employed health insurance adjustment to income, she can still use the amount of premiums included in her income as a medical deduction in computing her itemized deductions.
I hope this helps to clarify for you.