Health Insurance Business Tax Deduction
for employees, families and owners under
IRC 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
Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.
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.
Visit our webpage on writing off medical expenses. Line 40 Schedule A
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 S Corp 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). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.
A 2-percent shareholder-employee is eligible for an above-the-line deduction # 29 1040 in arriving at 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
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))
The insurance plan must be established under your business per IRS Publication 535 pdf page 18Take the deduction on line 29 of Form 1040.
For more clarification of what “under your business” means – email us to discuss Tax Facts ONLINE – Subscription Question # 328
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
Schedule 1 1040
Tax Return Form # 1040
Instructions for Form 1040 pdf * (HTML)
Our web pages on
- Rental Income
- Schedule C Profit or Loss from Business
- Unemployment Compensation – How to apply? How it’s taxed.
- Health Savings Accounts HSA
- Retirement Plans – SEP, IRA Etc.
- Self Employed Health Insurance Deduction
IRS Publication 334
Tax Guide for Small Business
Insurance Deduction is on Page 34 of 2019 edition
CA Tax Guide for Business Owners
IRS Small Business Self-Employed Tax Center VIDEO
How to fill out a Schedule C Profit or Loss from Business VIDEO
Business Deduction
Meals & Entertainment VIDEO
Our webpages on
Steve Shorr
Website Introduction
15 reasons why you would be more comfortable with us
Our Webpage on Insurance Coverage for
COVID 19
Graphic from The Sun.UK
United Health Care - Get a quote
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
Child, Related Pages & Site Map
Other pages in Small Biz Tax Credits §45 R section
AB 1672 – (1992 to 2013) Small Group Health Rules prior to Obamacare
Health Insurance Deduction Line 29 for self employed
Schedule C – Line 12 Biz Income or Loss, Line 29 Health Insurance Premiums, Line 37 Adjusted Gross Income, MAGI Income
Home Office Deduction
Self Employed Deduction for S Corp Owners
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?
Covered CA Reporting
How much deduction for subsidy vs tax credit vs entire premium?
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 practise in CA. Here’s where you should be able to find IL rules
https://www2.illinois.gov/rev/Pages/default.aspx
https://www2.illinois.gov/rev/research/publications/bulletins/Documents/1996/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
https://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php
https://www.journalofaccountancy.com/issues/2005/mar/ltcinsuranceforownersandexecutives.html
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. https://www.irs.gov/forms-pubs/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. https://www.irs.gov/irb/2018-42_IRB#NOT-2018-76
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 ===> https://employers.healthreformquotes.com/tax-credit/self-employed/
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. See our FAQ page for more info.
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.
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?
We do not give tax or legal advise. Just use and interpret the citations on your own or check with competent professionals.