Insurance Broker | Financial Consultant, Lawrence Insurance Consulting, Southern New Jersey
Health insurance paid by an employer for coverage on an employee or the employee' s dependents is deductible as a normal business expense under IRC Section 162. Health insurance benefits are not wages and therefore are not subject to wage taxes. For this purpose, the term "employee" includes an owner/employee of a C-corporation but does not include owner employees of other types of businesses.
Self-employed individuals may deduct 100% of the cost of health insurance as an "above the line" expense on the front page of their Form 1040. The deduction is available to all qualifying taxpayers, regardless of whether they choose to itemize their other expenses. Direct deductions from gross income are allowed only to the extent of the amount of net self-employment income. Excess amounts, if any, may be deducted of Schedule A as listed in the "Individuals" section below.
The term "self-employed person" for this purpose includes non-salaried owners of S-corporations, LLCs, partners and sole proprietors underIRC Section 162i.
Except for salaried owner/employees, health insurance paid by a business on behalf of a self-employed person is not a deductible business expense. For example, if an S-corporation that pays for health insurance for its non-salaried owner/employee, this expense is not listed as a business expense on the Form 1120 but rather the deduction flows directly through the Form 1120S to the individual owner' s Form 1040. Health insurance for salaried owner/employees is treated the same as regular employees except that an adjustment for self-employment tax is made.
Health insurance benefits provided by an employer are not taxable income under IRC section 104 and 105. This includes amounts paid by the employer to reimburse the employee for the cost of health insurance. Of course, the employee may not "double-dip" by deducting the cost of these tax-free benefits on an individual tax return.
The cost of health insurance paid by individuals is tax deductible only to the extend that the cost of coverage they paid, in combination with some other specified expenses, is more than 7.5% of adjusted gross income. For most people, this limitation effectively means that they do not get a tax deduction for the cost of health insurance paid. The cost of health insurance paid by an employer is a deductible personal expense if the amount is included as wages in Box 1 of Form W2, but this is a relatively rare situation.
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Self-employed individuals may deduct 100% of the cost of health insurance as an "above the line" expense on the front page of their Form 1040. The deduction is available to all qualifying taxpayers, regardless of whether they choose to itemize their other expenses. Direct deductions from gross income are allowed only to the extent of the amount of net self-employment income. Excess amounts, if any, may be deducted of Schedule A as listed in the "Individuals" section below.
The term "self-employed person" for this purpose includes non-salaried owners of S-corporations, LLCs, partners and sole proprietors underIRC Section 162i.
Except for salaried owner/employees, health insurance paid by a business on behalf of a self-employed person is not a deductible business expense. For example, if an S-corporation that pays for health insurance for its non-salaried owner/employee, this expense is not listed as a business expense on the Form 1120 but rather the deduction flows directly through the Form 1120S to the individual owner' s Form 1040. Health insurance for salaried owner/employees is treated the same as regular employees except that an adjustment for self-employment tax is made.
Health insurance benefits provided by an employer are not taxable income under IRC section 104 and 105. This includes amounts paid by the employer to reimburse the employee for the cost of health insurance. Of course, the employee may not "double-dip" by deducting the cost of these tax-free benefits on an individual tax return.
The cost of health insurance paid by individuals is tax deductible only to the extend that the cost of coverage they paid, in combination with some other specified expenses, is more than 7.5% of adjusted gross income. For most people, this limitation effectively means that they do not get a tax deduction for the cost of health insurance paid. The cost of health insurance paid by an employer is a deductible personal expense if the amount is included as wages in Box 1 of Form W2, but this is a relatively rare situation.