Can You Cover Your Health Insurance as a Business Expense?

Can You Cover Your Health Insurance as a Business Expense?

Can You Cover Your Health Insurance as a Business Expense?

If your business is paying for your health insurance, the tax treatment of the premiums depends on how your business is structured.
  1. If you are a sole proprietor or single-member LLC, the health insurance premiums are not deductible by your business. Record health insurance premiums paid by your business as an owner draw. You may wish to create a separate draw account to make it easier to track the amount. Then claim the Self-employed Health Insurance deduction on your personal return.
  2. If your business is a partnership or multi-member LLC taxed as a partnership, then health insurance premiums paid on behalf of partners are treated as Guaranteed Payments to the partners. Guaranteed Payments are deductible by the partnership as a business expense. You may wish to create a business expense account called “Guaranteed Payments” or “Partners’ Health Insurance” to track the payments. Each partner reports Guaranteed Payments as income on his or her personal tax return, but may be able to deduct health insurance premiums as Self-employed Health Insurance.
  3. If your business is taxed as an S corporation and you own more than 2% of the business, then health insurance premiums paid by the business on your behalf are treated as part of your wages. The business deducts the premiums as wages. Be sure to tell your payroll service that health insurance premiums are being paid, so that they can be properly accounted for on payroll tax returns and W-2s. Then as in the case of partners and sole proprietors, you may be eligible to deduct these health insurance premiums as Self-employed Health Insurance on your personal tax return.
In each of the above situations, your business tracks the health insurance premiums, you include the premiums in gross income on your personal return (self-employment income, partner’s Guaranteed Payments, or S-corporation owner’s wages), and then you claim the Self-employed Health Insurance deduction on your personal tax return, subject to certain IRS limitations.
 
Tip: If your business has employees, talk to your tax accountant about special rules that apply when a business pays for health insurance premiums.

Sunrise and Lendio do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice. You should consult a tax, legal, and accounting advisers before engaging in any transaction.


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