You’ve started a small business, and now you are seeking ways to maximize your deductions come tax season. You are probably asking “Is small business health insurance tax deductible?”, “how much money can be deducted?.” and “what plan options do I have as a small business owner.” Keep reading below for more information on how you can help cut a major business cost.
The Benefits of Obtaining Small Business Health Insurance
To attract the best employees it is wise to offer your employees health insurance. Small businesses are subject to the same tax rules as larger companies. The tax code allows small businesses to deduct the cost of health insurance for their employees, which can make it easier for owners to pay for coverage.
This deduction is available for both sole proprietorships and corporations if you follow certain guidelines and rules. The amount you can deduct varies depending on your business structure.
Sole-Proprietorship, Side-Hustle, and Single Member LLC Business Owners
Writing off Health Insurance is pretty straightforward and easy to do as a sole proprietor and single-member LLC owner. In a situation like this, there is a line on the IRS form 1040 that is clearly labeled: Self Employed Health Insurance Tax deduction.
The requirement to deduct health insurance in this situation is that you have “net income”. Your profit in the business must be greater than the health insurance premium amount you are trying to pay off.
As always we always recommend speaking to your tax advisor to be sure you report your expenses accurately and are receiving the most deductions possible.
As an S-Corp business owner (or an LLC taxed as an S-Corporation), there are specific rules when it comes to filing in order to get the write-off for health insurance premiums.
Your business will be filing a 1120S business Tax return AND issuing you a W-2 as an owner/operator.
Then, because you are an S-Corporation it doesn’t require that you provide health insurance for your employees of the business. Under the “ACA” or the Affordable Care Act, you can deduct 100% of your health insurance, and not cover any of the other employees.
If you employ 50 or over employees then under the Affordable Care Act you are considered to be an Applicable Large Employer. In this case, you are legally required to offer health insurance to all of your workers.
Small Businesses S-Corporation With Employees
If you do have employees and provide health insurance benefits as part of your benefits package you can deduct the health insurance premiums that you pay for their plan. BUT there are exceptions, again we strongly advise working with a tax professional to be sure you are doing everything correctly and there are no surprises come tax season.
It’s important for small business owners to consider their health insurance options.
As a small business owner, covering your health insurance is an essential part of your company. If you want to hire and retain good employees it is a good idea to have some sort of health benefits package in place.
Many options are available when choosing a health insurance plan for your small business:
- HMO plans offer lower premiums but require members to use network providers
- PPOs provide more flexibility in choosing doctors but can cost more than HMOs
- High deductible plans require members to pay higher deductibles upfront before the insurer kicks in with its benefits
Other Benefits Expenses that May Qualify for Tax Deductions
In many instances, small businesses are also able to deduct some other health insurance-related expenses from their Federal Business Taxes. These deductions can include:
- Contributions to an HSA
- Tax-advantage benefit accounts
There are ways to help your employees buy health coverage on their own if you cannot afford a group health plan. Each of these options offers different benefits to both your business and your employees so it is in your best interest to have a good understanding of the fine print.
HSA’s Under High Deductible Plans
A Health Savings Account(HSA) is another great benefit to offer along with your small group health plan. The contributions you and your employees make to these accounts are tax deductible. You may only contribute to an HSA if you have a High Deductible Plan (HDHP) generally these plans only cover preventative services before the deductible. The IRS places annual limits on these accounts. Some healthcare costs that HSA typically covers are:
Tax-advantaged Benefit Accounts
There are several types of tax-advantaged benefit accounts that exist:
- Flexible spending accounts (FSA)
- Health reimbursement arrangement (HSA)
- Health Savings Account (HRA)
Bottom line, in many cases as a small business owner your health insurance is a deductible expense. However, it is important to work with your accountant, bookkeeper, and payroll reporting company to plan and coordinate the payment of your health insurance premiums to be sure it is done correctly.
If you’re a small business owner and need assistance going over small business insurance plan options available to you, we can help! Give us a call at (914) 633-3333 or fill out our form today. We’re here for you Monday-Friday 9 a.m. to 6 p.m. EST and will get back to you quickly with all of the information you need.
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