Can Business Owners Deduct Health Insurance on Taxes?

If you're a business owner with employees, you can deduct the premiums you pay for their health insurance on the appropriate tax form. For example, if you're a sole proprietorship, you can deduct premiums paid to provide health coverage to Schedule C employees. This deduction reduces the amount of income subject to self-employment taxes. The self-employed health insurance deduction is a personal deduction, meaning it does not reduce your business's income for self-employment tax purposes.

However, there are a couple of drawbacks to this deduction. If you have an S-type limited company, your spouse cannot be both a shareholder and a corporate employee. In addition, your spouse must be a bona fide employee; they must actually work in your business, you must pay applicable payroll taxes, and you must treat your spouse like any other employee. You must also pay your spouse reasonable compensation. If you're single, you won't be able to hire a spouse to take advantage of this method.

However, a single parent could hire their child and deduct the cost of their child's health insurance as a business expense. Your child's policy cannot cover you or other family members. Small businesses can often deduct some of their health insurance-related expenses from their federal business taxes. Therefore, you cannot have your company provide you with health insurance and deduct the cost as a business expense. The employer must have a written “plan” that stipulates that it will provide medical coverage by reimbursing its employees for all or part of the medical expenses or the cost of coverage purchased directly by employees. You can deduct health insurance costs as deductible business expenses if your company pays them to employees.

If you're a small business owner and cannot afford a group health insurance plan, you can help your workers buy coverage and, at the same time, get tax exemptions in many cases. A common concern for employers is whether their contributions to health coverage premiums are deductible as business expenses. Small business health insurance tax deductions can make health coverage more affordable by helping employees buy their own individual or family health plans.

Jenny Kizzia
Jenny Kizzia

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