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
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 *
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
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 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
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 *
- Self-Employed Health Insurance Deduction
Our web pages on
Insurance Deduction is on Page 34 of 2019 edition
How to fill out a Schedule C Profit or Loss from Business VIDEO
Our webpages on
- IRC §106 Health Insurance Deduction for Employers & Employees
- Section §105 -HRA Health Reimbursement
- Section 125 – POP Plan Employee Contributions are Tax Deductible
Website Video #Introduction
- 17 Reasons to use Steve Shorr Insurance
- Set a Meeting
Our Webpage on Insurance Coverage for
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
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,
Child, Related Pages & Site Map
Other pages in Small Biz Tax Credits §45 R section