Small Employer Health Insurance Business Tax Deduction
for employees, families and owners under
IRC Section §106
Partnerships ** Self Employed ** S Corp ** Schedule 1
Employer Health Coverage Tax Deduction Section 106
- Group Health Insurance under IRS Code Section §106 is tax deduction for both employer and not income to the employee. It’s the biggest break there is in the Tax Code, even more so than Mortgage Interest.
- Providing Health Insurance is a GREAT way for EmployER’s to attract and retain better, stable, dependable workers. It’s also the law for large employers (over 50 lives) to meet the mandate and for the employees in CA to meet the individual mandate.
- Internal Revenue Code Section §106
- (a)General rule
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Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.
- Internal Revenue Code Section §106
- This allows Employers to deduct Group Health Insurance Premiums for their employees including the owners and officers, as long as it’s a qualifying Group Health Insurance plan as a business expense.
- PLUS, Employees do not have to report employer paid premiums or the benefits in their gross income!
- Scroll down or look to the right of your screen for more references to prove the deduction. Health Coverage Guide *
- If your employees are contributing to the premiums, their portion can also be tax deductible by using a Section §125 POP (Premium Only Plan) or a cafeteria plan.
- Employees whose employers do not currently provide Affordable Group Coverage, might qualify for Tax Credits Subsidies under Obamacare.
- If the employees on their own want Medical Coverage – like going to Covered CA the premiums are not deductible unless they are more that 10 % of adjusted gross income.
- Writing off medical expenses Publication 502
- See also the Health Care Tax Credit Section 45
Partnerships
You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.
- Insurance that covers fire, storm, theft, accident, or similar losses.
- Credit insurance that covers losses from business bad debts.
- Group hospitalization and medical insurance for employees, including long-term care insurance.
- If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Publication 535 *
The insurance plan must be established under your business.
For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.
For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065)
See self employed rules. Ask us for a copy of Q & A # 8747 on Health Insurance for Partners & Sole Proprietors
Section 106 for #SCorp Owners?
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder–employee’s Form W-2, subject to income tax withholding.
However, these additional wages are not subject to:
- Social Security, or
- Medicare (FICA), or
- Unemployment (FUTA) taxes
if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents).
A 2-percent shareholder-employee is eligible for an above-the-line deduction See Schedule 1 and is able to lower his Adjusted Gross Income (AGI)
for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction. IRC § 162(l). Self Employed 26 USC 162 (I) (2) (b)
This includes the:
- the owner – taxpayer,
- the owner’s – taxpayer’s spouse,
- the owner’s – taxpayer’s dependents, and‘
- any child (152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27. (HR 4872 – Obama Care §162(l)(1)§401(c)(1))
- S Corporation Compensation and Medical Insurance Issues IRS.gov
- check out Publication #974 Premium Tax Credit,
- If you receive Obamacare Tax Credits, here’s more detail
1040 Tax Return – Schedule 1 Line 29 – 16
#SelfEmployedDeduction Health Insurance Tax
Self-employed health insurance deduction.
You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family.
How to figure the deduction. Generally, you can use the worksheet in the Instructions for Forms 1040 and 1040-SR to figure your deduction. However, if any of the following apply, you must use the worksheet in chapter 6 of Publication #535.
• You have more than one source of income subject to SE tax.
• You file Form 2555 (relating to foreign earned income).
• You are using amounts paid for qualified long-term care insurance to figure the deduction.
Use Publication #974 Premium Tax Credit instead of the worksheet in the Instructions for Forms 1040 and 1040-SR if the insurance plan established, or considered to be established, under your business was obtained through Covered CA - no extra charge to use an agent and you are claiming the premium tax credit. Publication 334 *
Instructions & Form 1040
Schedule 1, * Line 29 Instructions
#Adjustments to Income - Schedule 1
#Schedule1 1040
- Part I Additional Income
- 2a Alimony received
- 3 Business income or (loss). Attach Schedule C
- Get Health Quote for your business
- 5 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E
- 7 Unemployment compensation
- 8 Other income:
- a Net operating loss
- b Gambling income
- c Cancellation of debt
- d Foreign earned income exclusion from Form 2555
- e Taxable Health Savings Account distribution
- Part II Adjustments to Income
- 11 Educator expenses
- 13 Health savings account deduction. Attach Form 8889
- 15 Deductible part of self-employment tax. Attach Schedule SE
- Learn more about your Social Security Benefits
- 16 Self-employed SEP, SIMPLE, and qualified plans -
- 17 Self-employed health insurance deduction
- 19a Alimony paid
- 20 IRA Individual Retirement Account deduction
- 21 Student loan interest deduction
Employer's Guide to Fringe Benefits #Pub15B pdf HTML
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- Fringe Benefit Overview
- Cafeteria Plans
- Simple Cafeteria Plans for Small Businesses POP Plans?
- Accident and Health Benefits
- Accident or health plan.
- Employee.
- Group-Term Life Insurance Coverage
- Health Savings Accounts
- Avalara Tax Compliance Guide for Business 2022 151 pages
IRS #Pub334
Tax Guide for Small Business
Schedule C
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- IRS Small Business Self-Employed Tax Center VIDEO
- Our FAQ on Meals
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IRS Small Business Self-Employed Tax Center VIDEO
- How to fill out a Schedule C Profit or Loss from Business VIDEO
- CA Tax Guide for Restaurant Owners
- Taxable and Nontaxable Income Publication 525
- Avalara Tax Compliance Guide for Business 2022 151 pages
- Affordable Care Act Tax Provisions for Employers
Our webpages on
Health Coverage #Guide .org
Small Biz Majority 
- What Is Group Coverage?
- Is Insurance Required?
- Is Your Business Eligible for Group Coverage?
- Who Is Eligible for Coverage?
- What Do Employers Have to Pay?
- Avalara Tax Compliance Guide for Business 2022 151 pages
- resilience compass.org Find business resources that you need
Art Gallagher
Health Care Reform FAQ's
Understanding Health Reform
Compliance #Assistance Guide from DOL.Gov Health Benefits under Federal Law
- Health Care Reform Explained Kaiser Foundation Cartoon VIDEO
- Choosing a Health Plan for Your Small Business VIDEO DOL.gov
References and Technical Links
IRS More Info on Health Care Arrangements to not have a group plan but pay for employee individual plans. IRS Notice 2013-54
IRS Publication — Business Expenses #535
Tax Guide to Fringe Benefits — Publication 15-B
Internal Revenue Code Title 26 USC
GPO’s Site
Rev. Rul. 82-196
Rev. Rul. 67-360
IRS Withholding Calculator
CA Franchise Tax Board
US Tax Court.gov Opinions Search
Tax Facts: Employer Deduction — Password-Protected Tax Facts on Insurance — Employee Benefits goes into very detailed explanations. It can be purchased for $99 or check their website for a trial subscription.
IRS Publication 502(all Medical Expenses) Insurance Premiums
Paying into Social Security # 10022
IRS 8885 Health Coverage Tax Credit A partner with net earnings from self-employment reported on line 15a of Schedule K–1 (Form 1065).
IRC Section 162 (l)
A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W–2.
IRS Publication #535 Business Expenses
Schedule C Profit or Loss from Business 1040
Instructions Schedule C
Types of Business Organization
Learn more — No more salary discrimination §2716,
Email us for Tax Facts Self Employment Deduction Password Protected
Is your Family Protected with Life Insurance? Click here for Instant Quote
Is your Family Protected with Life Insurance? Click here for Instant Quote
Calculate your Covered CA MAGI Income
take #Line8b 11 Adjusted Gross income then add line 2a, 6a & 8 (Foreign Income)
- 1040 IRS Annual Tax Form
- Schedule 1 Additional Income & Adjustments to Lower your MAGI Income
- Calculate - Estimate your Taxes
- Steve's Video on MAGI Income
- Get instant quotes, subsidy calculation and coverages
- NO ASSET TEST for MAGI based subsidies in Covered CA or MAGI Medi Cal Qualification. VIDEO
- Nor is there a lien against your estate for Covered CA or MAGI Medi Cal
Child, Related Pages & Site Map
Other pages in Small Biz Tax Credits §45 R section
Details on Obamacare Subsidy and Line 29 deduction
Self Employed – New Definition under Health Care Reform – Introduction
See also rules on Management Carve Outs, what you offer to yourself, must be offered to employees, along with Insurance Company participation rules.
Discrimination – Management Carve Outs Offering Employees same terms and benefits?
How much deduction for subsidy vs tax credit vs entire premium?
[child-pages]
[sibling-pages]
https://www.benefitnews.com/advisers/opinion/why-employer-sponsored-healthcare-is-still-the-best-option
https://individuals.healthreformquotes.com/aca/magi/aptc/premium-tax-credit-8962/#estimators
When a corporation pays long term care insurance premiums on behalf of a more than 2% shareholder of an S Corp, and includes that amount as Federal wages on the W-2 Form, should those premium amounts also be reported as State wages on the W-2 Form of an Illinois employee?
Reply
We only practice in CA. Here’s where you should be able to find IL rules
illinois.gov/
illinois.gov/fy96-23.pdf
See also our pages on Long Term Care benefits not being taxable as income
Tax Qualified Long Term Care Policies
Long Term Care for Employer Groups
See also
aaltci.org/long-term-care-insurance
ltc insurance for owners and executives
Our webpage on w 4 Withholding
Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:
Income, social security, or Medicare tax was withheld.
Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate. irs.gov/about-form-w-2
If I take a client, prospect, my web designer or another member of my profession to pick their brain to lunch, how much is tax deductible?
INTERIM GUIDANCE FOR BUSINESS MEALS
taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:
1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
2. The expense is not lavish or extravagant under the circumstances;
3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. irs.gov
See also publication 463
WHAT RECORDS DO YOU HAVE TO KEEP TO GET THIS TAX CODE 106 REBATE?
Are you and individual, Sole Proprietor, Self employed, C Corp, S Corp, partnership or what? How many employees are you providing with health insurance?
Here’s instructions for Health Insurance deduction line 24 of your 1120 form on page 13. ===> https://www.irs.gov/pub/irs-pdf/i1120.pdf
Form 1065 for partnerships ===> https://www.irs.gov/uac/form-1065-u-s-return-of-partnership-income
Self employed and S Corp Owners ===>
Can a company offer HIGHLY compensated employees 70% paid health insurance and 50% Aflac insurance and then offer only $450 to the other employees and 0% towards Aflac? I always thought that you had to treat people the same regardless of what the person makes with the exception of Part Time employees. Please help me to clarify this.
Please use the menu above and review the pages on management carve outs, Section 2716 salary discrimination and if you are in CA the get a quote or send your census feature. If you still have questions – please post there.
I elected to put $2400/yr into a dependent care FSA. At the end of June, I had a qualified life event (my husband got a new job and it paid much less than his old job) and my company’s HR dept allowed me to make changes to my benefit elections mid-year. With my husband’s income reduced, we would no longer be able to afford expensive daycare after school, but would need to move to a cheaper option (ASP program at the school instead of private day care), so I stopped contributions to the dependent care FSA. Unfortunately, I already signed the kids up for summer camps in April and May so there was no getting out of that expense. I had $1,200 in my dependent care FSA at the time of this change (1/2 the yr). When I submitted my claims for the summer day camps, they were denied because the camps didn’t take place until July/Aug and I no longer had dependent care FSA coverage. Since I contributed that money, and I’m still with my employer, don’t I have the whole year to use the funds I contributed at the beginning of the year before the qualified life change?
Give us a few days. We will respond on our FSA – Flexible Spending Account Page.
I am employer that funds a HDHP and HSA’s for all employees.
Have employee with an adult child who can no longer be considered a dependent. Adult child needs to open her own HSA but is still covered on HDHP for two more years.
Can employer contribute to adult child’s HSA? If so, are there any tax advantages?
Thank you.
We are creating a new webpage to discuss this issue. Click here to view.
1) I have an employee who has medical coverage through his wife’s employer and her coverage is a group plan not an individual plan.
2) The employer requires her to pay for the premium difference between an individual policy and the couples plan they are on.
3) When I hired him, he asked if I would cover / reimburse the premium amount that gets taken out of his wife’s paycheck.
4) If I elect to pay / reimburse him the amount of premium her employer deducts, is that considered taxable income to him (my employee)?
5) Should I add that amount to his salary through payroll or can I write him a separate non-taxable check directly out of my checking account?
Note – numbering was done by the webmaster for more clarity when responding.
1) That’s great as individual plans can’t be used under ObamaCare by Employer Group’s. HNI
Since your employee is covered by a spousal group plan, that is a permitted waiver and won’t count as a negative in the minimum participation percentage required by your Insurance Company.
2) So, you mean that he’s charging full price for dependents and by individual you mean the employee only rate.
3) The wife might check into a Section 125 POP Premium Only Plan or Section 125 Cafeteria Plan (we will be updating that page), so that the portion she pays from her paycheck is tax deductible.
4) Here’s a citation Private Letter Ruling 9406002 IRC Section 61 that clearly says you cannot do this, without it being taxable, unless you have a Section 125 Cafeteria plan.
What is a spousal carve out and a spousal surcharge program, and how do they differ?
word and brown.com/Offering-Cash-in-Lieu-of-Benefits
SHRM.org health insurance opt out
5) It would be taxable as salary, unless you have a Section 125 cafeteria plan.
3,4 & 5) Does your firm have a group plan that he is eligible for?
How many employees do you have?
Are you willing to make this plan available to all employees who can be a dependent on a spousal plan or other MEC Minimum Essential Coverage plan, other than Individual Plans? That is, not discriminate because of salary Section 2716?
Note that you can’t offer incentives to encourage someone to drop the group plan and take Medicare ADA Cormarkins
We do not give tax or legal advise.
Just use and interpret the citations on your own or check with competent professionals.