Small Employer Health Insurance Business Tax Deduction
for employees, families and owners  under
IRC Section §106

Employer Health Coverage Tax #Deduction IRS Section 106

• Group Health Insurance under IRS Code Section §106 is  tax deduction as a business expense for both the employer and is 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 California  individual mandate.
  • Internal Revenue Code Section §106

    • 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!
  • 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 ACA/HealthReform/Obamacare.
  • If the employees on their own want Medical Coverage – they can get  Covered CA  with us.
  • Writing off medical expenses Publication 502
  • Get Employer Health Quotes
  • Get Individual & Family Quotes 
• Health Care Tax Credit Section 45
• LTC Insurance for Owners and Executives  Journal of Accountancy.com *
  • Our Webpage on Long Term Care

 Partnerships 

You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.

• • IRS K 1
  • Instructions 1065
    • 1065 Partnership Return
  • as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.

Section 106 tax deduction for #SCorp Owners?

• The employee premium for S Corporation is not an issue for being tax deductible business expense.  See IRS Section 106 above.
• For  2-percent S corporation shareholder-employee  it gets complicated and confusing.  Check our bibliography belong and competent tax counsel, group health premiums are deductible by the S corporation and reportable as wages on the shareholder– on the 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
• The owner and 2% + shareholders may be able to use the Self-Employed Health Insurance (SEHI) deduction if you’re at least a 2% shareholder in an S Corporation. To claim this deduction, the health insurance premiums must be paid or reimbursed by the S corporation and reported as taxable compensation in box 1 of your W-2.  The S Corporation can either purchase the policy in your name or reimburse you for the premiums you paid. The policy can also cover your spouse, dependents, and any nondependent children under the age of 27.   See Section 162 IRS Code * ^(152(f)(1)) *  ^{(HR 4872 – Obama Care  §162(l)(1)§401(c)(1))}
  • Claiming the SEHI deduction is generally more advantageous than claiming an itemized deduction.   The SEHI deduction will appear on line 17 of Schedule 1 of your federal income tax return,  Form 1040 (as part of Line 10), and is limited to the amount in Box 5 (FICA wages by the corporation) of your W-2.W-2 and the K-1 that the S corporation sent to you.
  • 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) irs.gov/s-corporation-compensation-and-medical-insurance-issues 
• The insurance plan must be established, or considered to be established, under the  business.  ^{IRS  Publication 535 pdf page 18}   * If only one employee it can be in employees name  ^IRS.gov *  This includes  Individual Medicare Plans ^{Journal of Accountancy}   Check with your CPA.

Links, Bibliography & Resources

• • • Source – loop hole lewy.com/health-insurance-deduction
    • irs.gov/s-corporation-compensation-and-medical-insurance-issues
    • nolo.com/deducting-health-insurance-with-s-corporation
    • intuit.com/deduct-health-insurance-premiums-corporation
    • S Corporation Compensation and Medical Insurance Issues  IRS.gov
    • Publication 15­B Employer’s Guide to Fringe Benefits..
    • IRS Publication 535  Guide to business expense resources
    • national underwriter.com/Tax Facts Series
      • Question # 8800, 8787, 8804   Email us [email protected] if you would like a copy  of those pages.
    • 26 U.S. Code § 162 – Trade or business expenses
      • (a)In general
        There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
        (1)a reasonable allowance for salaries or other compensation for personal services actually rendered;
      • Federal Tax Treatment of Health Insurance Expenditures by the Self-Employed: Current Law and Issues for Congress 2009
    • check out  Publication #974 Premium Tax Credit,
    • If you receive Obamacare Tax Credits, here’s more detail
    • Withholding W 4 
      • IRS Tax Withholding Publication 505
    • Form 1120  US Corp Tax Return
      • 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
      • Get an instant quote for qualifying HDHP health insurance plans 
• Part II Adjustments to Income
  • 11 Educator expenses
  • 13 Health savings account deduction. Attach Form 8889
    • Get an instant quote for qualifying HDHP health insurance plans 
  • 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 -
    • Learn more and get a plan set up
  • 17 Self-employed health insurance deduction
    • Get Employer Group Quote - must have at least one non spousal employee
  • 19a Alimony paid
  • 20 IRA Individual Retirement Account deduction 
    • Learn more and get a plan set up
  • 21 Student loan interest deduction
• Instant Business Health Insurance Proposals 

IRS Publications

• IRS Publication 535 Business Expenses
• 
• IRS Publication 463 Travel #Gift, Meals & Car Expenses 
• 
• 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?
  • GUIDANCE FOR BUSINESS MEALS
    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 as it's quite confusing

• ^{Publication 587 Biz use of Home}
  • 

• Avalara Tax Compliance Guide for Business 2022 151 pages

IRS Publication 502 pdf * html

Medical & Dental #Expenses

• • Aetna Listing of HSA allowable expense
  • Topic no. 502, Medical and dental expenses  IRS.Gov 
    • expenses exceed 7.5% of your adjusted gross income for the year may be deductible

• Medical Necessity?
  • The Tax Definition of "Medical Care:" A Critique of the Startling IRS The Tax Definition of "Medical Care:" A Critique of the Startling IRS Arguments in Arguments in O'Donnabhain V. Commissioner   Repository Law.com
  • Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care.
  • Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.
  • Turbo Tax
  • Schedule A 1040 Itemized Deductions

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
  • ⋄Cornell’s Site ⋄
  • GPO’s Site
  • ⋄Formilab’s Site
• Rev. Rul. 82-196
• Rev. Rul. 67-360
• IRS Withholding Calculator
• CA Franchise Tax Board
•  IRS Publication 502(all Medical Expenses)  Insurance Premiums
• irs.gov/1040
• 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
• Learn more — No more salary discrimination §2716,
• Tax Estimators

Brother - Sister - Sibling Side Pages  Subpages 

View our website with your Desktop or Tablet for the most information 

• IRC §106 – 162 Health Insurance Deduction for Employers & Employees
  • Schedule C – Self-Employment Income – Hobby? Office in home?
• Section §105 -HRA Health Reimbursement & ICHRA
• Section 125 – POP Plan Employee Contributions are Tax Deductible

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