top of page
Search

Business Health Insurance Premium Deduction



Sole Proprietorships and Single Member LLC’s who file their business tax return on Schedule C have two options to write off their health insurance premiums. Each option will depend on who is receiving the benefits of the health insurance premiums (IRC Section 162(l))


Option 1: Direct Write-Off as a Business Expense: if you have employee and pay for a portion of their health insurance premiums then the amount you pay out of pocket for the employee benefit plan is completely deductible on Schedule C.


Option 2: Adjustment to Income: if the business is paying for health insurance premiums for the owner of the entity, including his/her spouse and dependents, then you must report the premiums paid as an adjustment to income on Schedule 1. However, premiums paid for employees are still deductible on Schedule C. (IRC Section 162(l)(4))


S-Corporations and C-Corporations offer greater benefits by allowing a full deduction for health insurance premiums paid on behalf of the employees and the owners of the company. To obtain the full benefits of this plan you will need to separately state the insurance premiums on the W-2. Speak with a qualified tax planner to insure you are following the IRS guidelines. Failure to correctly report the insurance premiums can trigger an unnecessary audit. (IRC Section 162(l)(5))


What Does This Mean?

Jim is married and has three children. He is the sole owner of his professional painting business and has three employees. The business pays $9,000 per year for the employee’s health insurance premiums and pays $9,000 per year for Jim’s family health insurance premium plan. Jim can deduct $9,000 on his Schedule C, effectively saving him $3,537 on self-employment and federal income taxes. However, the $9,000 is only an adjustment to income, effectively saving him only $2,160 on federal income taxes.

Now assume Jim’s business is operating as an S-Corporation. In general, if the correct procedures are followed then the officers wage, subject to Medicare and Social Security taxes, will be reduced by $9,000 resulting in an estimated payroll tax and federal income tax savings of $3,537.


Conclusion

Deducting health insurance premiums are not as straight forward as some may expect it to be, as is the same with all of tax law. Therefore, having a qualified tax professional, preferably your outsourced accountant, on your side is key to maximize your tax savings.


Contact us today and schedule your first free consultation to get you on the path of paying your fair share in taxes, and not a penny more.


Sincerely,


Cory Marlow, Executive Accountant

Marlow Accounting

(406) 821-3199


6 views0 comments

Recent Posts

See All

Commenti


bottom of page