Can Business Owners Write Off Health Insurance?

If you own a business, health insurance feels like a double hit.

First, the premiums are not cheap.
Second, you keep hearing that “business owners can write off health insurance,” but no one really explains what that means in plain English.

Can you write off your own coverage?
What about your family?
What about your employees?
Does it matter if you are an LLC, S corp, or sole proprietor?

For clients of Savon Insurance Brokerage and visitors to savonusa.com, these are very common questions. The good news is that in many cases, yes, business owners can write off health insurance. The catch is that how you do it depends heavily on how your business is set up and how you get your coverage.

In this guide, we will break it all down in simple language. We will look at:

• When health insurance is deductible as a business expense
• How the special self-employed health insurance deduction works
• Different rules for LLCs, S corps, C corps and partnerships
• How to handle employee health insurance and HRAs
• Common mistakes that get people into trouble
• How a broker like Savon fits into the picture

This is general education, not personal tax advice. Tax rules change and your situation is unique, so always double check with your tax professional or the IRS before you file.

 

Why This Question Matters So Much For Business Owners

When you are an employee, things are simple. Your employer either offers health insurance or they do not. If they pay part of your premium through payroll, that part is usually tax free to you, and you do not think much about the write off behind the scenes.

As a business owner, you are wearing two hats:

• You are the person who needs health coverage for yourself and your family.
• You are also the employer who might want to offer benefits to your team.

Health insurance is often one of your biggest monthly expenses. IRS and small business resources point out that premiums and related health costs are among the most common deductions claimed by small businesses and self-employed people.

If you handle the write off correctly, you can:

• Reduce your taxable business income
• Reduce your personal taxable income in some cases
• Make health coverage more affordable for you and your employees
• Compete better for talent without wasting money through bad tax treatment

If you handle it poorly, you might:

• Miss deductions you are entitled to
• Try to deduct something twice and raise red flags
• Lose out on credits you could have claimed
• Confuse the rules for your type of business

So let us start with the short version.

 

The Short Answer: Yes, But It Depends On Your Business Type

At a high level:

• Businesses can usually deduct health insurance premiums they pay for employees as a normal business expense. That includes small businesses that offer group coverage.
• Self-employed owners can often deduct their own premiums, but the rules are different from employees and depend on how the business is taxed. The IRS calls this the self-employed health insurance deduction, which is reported on Schedule 1 (Form 1040) using Form 7206.
• S corp owners who own more than 2 percent of the stock have special rules. The S corp can deduct premiums it pays, but the owner has to report those premiums as wages on their W-2, and then may be able to claim the self-employed health insurance deduction on their individual return.
• C corp owners who are treated as employees generally get coverage like any other employee. The corporation can deduct the premiums, and the coverage is typically tax free to the employee under normal employer health plan rules.

In other words, “Can business owners write off health insurance?” is really three different questions:

1. Can the business write off premiums it pays?
2. Can the owner write off premiums for themselves, their spouse and dependents?
3. Can the employees get their coverage and contributions treated in a tax efficient way?

To answer properly, we need to understand how write offs work in each case.

 

Two Different Kinds Of “Write Off” You Need To Know

When people say “write off,” they sometimes mix up two different ideas. For health insurance, both can apply.

1. Business expense deduction

This happens on the business side.

If your company pays health insurance premiums for employees, those payments are usually treated as an ordinary and necessary business expense under IRS rules, and the business deducts them on its tax return.

This can reduce:

• Income on a Schedule C (for sole proprietors)
• Taxable income on a corporate return (Form 1120 or 1120-S)
• Partnership income that flows through to partners

This does not appear as a separate “health insurance deduction” line on your personal Form 1040. It happens before profits reach you.

2. Self-employed health insurance deduction on your personal return

This is personal.

If you are self-employed, the IRS allows you to deduct health, dental and qualified long term care insurance premiums you paid for yourself, your spouse and your dependents as an “adjustment to income” on Schedule 1 (Form 1040). You calculate this on Form 7206.

This deduction:

• Reduces your adjusted gross income (AGI)
• Is taken even if you do not itemize deductions
• Is limited by your net self-employment income from the business
• Cannot be combined with certain other tax benefits (no double dipping)

The rules for who counts as “self-employed” in this context include:

• Sole proprietors with net profit on Schedule C
• Partners with self-employment income from a partnership
• More than 2 percent S corp shareholders with qualifying wages reported on a W-2 tied to premiums paid by the S corp

So when someone tells you “business owners can write off health insurance,” it might involve the business expense side, the self-employed side, or both.

 

How Health Insurance Write Offs Work By Business Structure

Now let us go through the main types of business owners and how the write off usually works in each case.

Sole Proprietors And Single-Member LLCs (Schedule C)

If you are a sole proprietor or you have a single-member LLC taxed as a disregarded entity, the IRS views you as self-employed.

You typically:

• Report your business income and expenses on Schedule C (Form 1040).
• Pay self-employment tax on net profit.

On the health insurance side, there are two layers.

Business expense side

If your business pays health insurance for employees, those premiums are deductible as a business expense on Schedule C, just like rent or utilities.

You cannot, however, treat premiums for your own coverage as a normal business expense on Schedule C. For you as the owner, the deduction happens separately.

Self-employed health insurance deduction

For your own coverage, the IRS allows you to use the self-employed health insurance deduction.

Key points from IRS guidance and Form 7206 instructions:

• You can generally deduct premiums for medical, dental and long term care insurance for:
  • Yourself
  • Your spouse
  • Your dependents
  • Your children under age 27, even if they are not your dependents
• The deduction is limited to your net profit from the business for that year.
• You cannot take this deduction for any month when you were eligible to participate in a subsidized employer plan, for example your spouse’s job based plan.
• You claim the deduction on Schedule 1 (Form 1040), line 17, after doing the math on Form 7206.

As long as you meet the criteria, this deduction usually works out better than trying to claim premiums as itemized medical expenses, because it reduces your AGI and is not subject to the percentage of income threshold that applies on Schedule A.

For many self-employed owners, this is the main way they “write off” their own health insurance.

Partnerships And Multi-Member LLCs Taxed As Partnerships

If you are a partner in a partnership or a member of an LLC that is taxed as a partnership, the setup is similar but with some extra steps.

• The partnership reports income and expenses on Form 1065.
• Health insurance premiums paid by the partnership for partners can be treated as guaranteed payments or as part of the partner’s compensation and included in their Schedule K-1 income.

On the partner’s personal return:

• Partners are generally treated like self-employed individuals.
• If premiums are properly reported and the partner has enough self-employment income, they may be able to take the self-employed health insurance deduction on Schedule 1, just like a sole proprietor.

So yes, partners can often write off health insurance, but the details depend on how the partnership pays and reports those amounts. This is something you want your tax preparer to handle carefully.

S Corporation Owners (More Than 2 Percent Shareholders)

S corporations are where things get tricky and where a lot of business owners get confused.

The IRS has special rules for S corp shareholders who own more than 2 percent of the company.

Here is the basic pattern:

1. The S corp takes out a health policy or reimburses the shareholder for premiums.
2. The S corp can deduct the premiums it pays as a business expense.
3. The S corp must then report those premiums as wages on the shareholder’s Form W-2, usually in box 1 and box 14.
4. The shareholder includes that income on their Form 1040, but if conditions are met, they can also claim the self-employed health insurance deduction on Schedule 1, which can neutralize the income effect on their taxable income.

IRS and professional summaries confirm that:

• Health and accident insurance premiums paid for a more than 2 percent S corp shareholder are deductible by the S corp.
• Those amounts are reported as wages to the shareholder and are subject to income tax withholding but not to Social Security and Medicare tax if handled correctly.

From the shareholder’s perspective, they are treated similarly to self-employed for the purpose of the health insurance deduction. They use Form 7206 and Schedule 1 to claim it, subject to limits.

If you are an S corp owner, getting the W-2 reporting right is critical. Missteps can lead to lost deductions or payroll tax issues, so this is an area where you absolutely want a knowledgeable payroll provider or tax professional involved.

C Corporation Owners

If your business is a C corporation and you are on payroll as an employee, the rules are closer to those of a regular employee.

• The corporation can usually deduct health insurance premiums paid for employees, including owner-employees, as a business expense.
• As long as the plan is set up properly and you meet general rules, the coverage is typically tax free to you as an employee under Internal Revenue Code section 106.

In this setup:

• You would not normally claim the self-employed health insurance deduction, because you are not treated as self-employed.
• The benefit is that your corporation gets the deduction, and your coverage is generally excluded from your taxable wages.

For many owner-managed C corps, this is straightforward, as long as they follow group health plan rules and any non-discrimination rules that may apply.

 

Writing Off Employee Health Insurance As A Business Expense

Now let us shift from the owner to your employees.

Deducting premiums for staff

For most small businesses, premiums paid for employees under a group health plan are:

• Deductible by the business as an ordinary and necessary business expense, and
• Excluded from employees’ taxable wages, as long as the plan meets general IRS rules.

This applies whether the business is a:

• Sole proprietorship
• Partnership
• LLC
• S corp
• C corp

In every case, these costs effectively lower your taxable business income.

Small Business Health Care Tax Credit

On top of the regular deduction, some employers can qualify for the Small Business Health Care Tax Credit.

According to Healthcare.gov and IRS guidance, the credit is for small employers that:

• Have fewer than 25 full-time equivalent employees,
• Pay average wages below a certain inflation-adjusted amount, and
• Pay at least 50 percent of employee premium costs for coverage purchased through the SHOP Marketplace.

If you qualify, the credit can be worth up to:

• 50 percent of the employer’s premium contributions for for-profit businesses, and
• 35 percent for tax-exempt employers.

This is separate from the regular deduction. The credit directly reduces your tax bill, which is powerful.

Not every small business will qualify, but if you are a smaller employer with relatively modest wages and you buy coverage through SHOP, it is worth asking your tax pro about this credit.

 

HRAs, QSEHRA And Other Flexible Ways To Help With Health Costs

You might not be ready for a full group plan, or you may want another way to help employees with health costs. That is where Health Reimbursement Arrangements (HRAs) come in.

QSEHRA for small employers

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a special type of HRA available to small employers that:

• Have fewer than 50 full-time employees, and
• Do not offer a group health plan.

With a QSEHRA:

• The employer sets a fixed allowance for each employee.
• Employees buy their own individual health insurance and pay for medical expenses.
• The employer reimburses those expenses up to the allowance limit.
• Reimbursements are tax free to employees, as long as they have minimum essential coverage.
• The employer can usually deduct the reimbursements as a normal business expense.

The IRS sets annual limits for how much employers can reimburse through QSEHRAs, and these limits adjust over time. Recent guidance shows annual tax-free reimbursement limits in the range of a few thousand dollars per year for individuals and more for families, rising modestly with inflation.

From a write off perspective, QSEHRAs are another way for business owners to support health costs and deduct them, without the complexity of a full group plan.

ICHRA for companies of any size

There is also an Individual Coverage HRA (ICHRA), which:

• Is available to businesses of any size,
• Has no specific contribution limits, and
• Lets employers reimburse individual premiums and medical expenses for employees on individual health plans.

Like QSEHRA, ICHRA reimbursements are typically deductible to the employer and tax free to employees, within the rules.

Savon Insurance Brokerage can help you decide whether a traditional group plan, a QSEHRA, or an ICHRA style approach fits your budget and hiring goals. Your tax pro can then show you exactly how those reimbursements will be deducted on your return.

 

Health Savings Accounts (HSAs) And Pre-Tax Employee Contributions

Another piece of the picture is how employee contributions are handled.

Pre-tax payroll deductions

If you offer a group health plan, you can often set up a Section 125 cafeteria plan, which allows employees to pay their share of premiums through pre-tax payroll deductions.

In that setup:

• The business can still deduct its share of premiums.
• Employees reduce their taxable wages by the amount they contribute, which lowers their income and payroll taxes.

Just note that if employees already pay for premiums pre-tax through payroll, they usually cannot deduct those same premiums again on their own tax return.

Health Savings Accounts (HSAs)

If you offer a High Deductible Health Plan, employees (and sometimes employers) can contribute to Health Savings Accounts (HSAs).

• Employer HSA contributions are deductible as a business expense.
• Employee HSA contributions can be pre-tax through payroll or deductible on the employee’s return.

Savon can help you choose HSA-compatible plans. Your tax advisor can then show you the best way to structure employer and employee contributions for maximum tax benefit.

 

Limits And Restrictions You Need To Watch

It is easy to assume “I pay a premium, so I can write it off.” The reality has more rules. Here are some of the most important ones.

No double dipping

You cannot deduct the same health insurance cost twice.

For example:

• If your business deducts premiums as an expense, you cannot also deduct those same premiums again as a medical expense on Schedule A.
• If you use the self-employed health insurance deduction on Schedule 1 for your own coverage, you cannot also count those premiums toward the medical expense deduction threshold on Schedule A. Form 7206 instructions make that clear.

The idea is simple: each dollar of premium gives you one tax break, not several.

Self-employed income limits

The self-employed health insurance deduction is limited by your net self-employment income.

If:

• Your Schedule C shows a loss, or
• Your partnership income is low or negative,

you may not be able to deduct all of your premiums as a self-employed health insurance deduction that year.

Those premiums might still count as medical expenses for itemizing on Schedule A, but that deduction is subject to a percentage of AGI threshold, which is harder to reach.

Employer plan eligibility

You generally cannot take the self-employed health insurance deduction for any month when you were eligible to participate in a subsidized employer health plan, such as your spouse’s coverage, even if you chose not to enrol.

This rule trips up a lot of people. Eligibility can block the deduction even if you did not use the plan.

S corp reporting rules

For more than 2 percent S corp owners, the self-employed deduction is only available if:

• The S corp either pays the premiums directly or reimburses you, and
• Those premiums are properly reported as wages on your W-2.

If you simply pay for insurance personally without involving the S corp and without W-2 reporting, you may lose access to the deduction.

HRAs and double benefits

If you use a QSEHRA or ICHRA to reimburse premiums:

• The reimbursements are generally tax free to employees,
• The business can deduct them,
• But employees cannot also deduct those same premiums again as personal medical expenses.

Again, no double dipping.

 

Common Mistakes Business Owners Make With Health Insurance Write Offs

Even careful owners make mistakes. Here are some patterns we see over and over.

Treating owner premiums like employee premiums on the books

Owners often assume the business can just pay their health premiums and deduct them like any other employee’s, no questions asked.

The problem is that tax rules treat:

• Sole proprietors
• Partners
• More than 2 percent S corp shareholders

differently from regular employees for health insurance.

If you do not follow the right process for your entity type, your deduction can be disallowed or you can misreport W-2 wages.

Forgetting to adjust for months when you were eligible for employer coverage

Self-employed owners sometimes claim the health insurance deduction for the full year even though they were eligible for a spouse’s employer plan for part of the year.

The IRS is clear that eligibility for a subsidized employer plan can block the self-employed health insurance deduction for those months.

This is somewhere your tax preparer will usually ask good questions.

Assuming every premium is deductible

Some owners try to deduct:

• Premiums paid for adult children who are not dependents and not under age 27,
• Premiums for people who are not spouses or dependents,
• Premiums for plans that do not qualify as health insurance in the tax sense.

The self-employed deduction rules and employer deduction rules are fairly specific about who counts.

Not coordinating with payroll when using S corps

For S corp owners, the health insurance deduction depends on the W-2 being done correctly.

If your payroll provider does not know you are trying to do this, they may skip the correct coding of health premiums in box 1 and box 14, which can lead to problems later.

This is one of those situations where a quick conversation can save you from messy corrections.

 

How Much Can A Business Owner Actually Save?

Every situation is different, but it helps to see the impact in simple terms.

Imagine:

• You are a self-employed owner paying 800 dollars per month for family health insurance.
• That is 9,600 dollars per year in premiums.
• You qualify for the full self-employed health insurance deduction.

If you are in a combined federal and state marginal tax bracket of, say, 22 percent federal plus 5 percent state:

• A 9,600 dollar deduction might save you around 2,600 dollars in income tax.

On top of that, if you pay health insurance for employees:

• Those premiums reduce your business profit, which can reduce both income tax and self-employment tax or payroll taxes, depending on your structure.

The actual numbers depend on your bracket, state, entity type and other deductions, but the core point is simple: health insurance write offs can turn a painful cost into a more manageable one.

 

How Savon Insurance Brokerage Fits Into This Picture

Savon Insurance Brokerage is in the insurance business, not the tax preparation business. They are not filing your returns, but they play a key role in making sure your coverage and your tax strategy line up.

Savon is a virtual independent brokerage, which means they can:

• Help you compare health insurance options from different carriers
• Explain plan designs, networks and costs in simple terms
• Work with you to design benefits that fit your budget and your hiring goals

From a tax perspective, Savon can help you:

• Decide whether a traditional group health plan, QSEHRA or ICHRA setup fits you better
• Keep clear records of what the business is paying for and what you are paying personally
• Coordinate information for your CPA or tax preparer so deductions can be claimed correctly

You still need a tax professional to interpret the IRS rules for your exact situation. But having the right coverage structure in place makes those rules work in your favour instead of against you.

 

Practical Checklist Before You Claim A Write Off

Here is a simple checklist to go through with your tax pro and your broker.

1. Confirm your business type and tax status
   Are you taxed as a sole proprietor, partnership, S corp, or C corp?
2. List who is covered and how
   Are you covering just yourself, you and your family, employees, or all of the above?
3. Separate owner coverage from employee coverage
   Make sure your bookkeeping distinguishes:
   • Employee premiums
   • Owner premiums
   • Reimbursements under HRAs or similar arrangements
4. Check eligibility for the self-employed health insurance deduction
   Do you have net self-employment income? Were you eligible for any employer plans?
5. Confirm S corp reporting if applicable
   If you are an S corp shareholder with more than 2 percent ownership, make sure:
   • The S corp paid or reimbursed premiums, and
   • The premiums are on your W-2 in the right boxes.
6. Ask about credits and HRAs
   • Do you qualify for the Small Business Health Care Tax Credit?
   • Would a QSEHRA or ICHRA be a tax efficient way to help employees?
7. Document everything
   Keep:
   • Premium invoices
   • Reimbursement records
   • Plan documents
   • Any notices to employees (for HRAs and group plans)

This gives your tax preparer everything they need to answer “Can I write this off?” with confidence.

 

Frequently Asked Questions: Can Business Owners Write Off Health Insurance?

Can a small business write off health insurance premiums for employees?

Yes. Health insurance premiums paid for employees are usually deductible as an ordinary and necessary business expense on the business return. This applies to many small businesses, including sole proprietors, partnerships, LLCs and corporations.

Can self-employed business owners deduct their own health insurance?

Often yes, using the self-employed health insurance deduction on Schedule 1 (Form 1040), calculated with Form 7206. You must have self-employment income, and you cannot be eligible for a subsidized employer plan that month.

How do S corp owners write off health insurance?

For more than 2 percent S corp shareholders, the S corp can pay or reimburse premiums and deduct them, but the premiums must be reported as wages on the shareholder’s W-2. The shareholder may then be able to claim the self-employed health insurance deduction on their own return, subject to rules.

Are health insurance costs tax deductible for C corp owners?

If you are a C corp owner on payroll as an employee, the corporation can usually deduct premiums for your coverage as a business expense and exclude those benefits from your taxable wages under general employer health plan rules. You generally do not use the self-employed health insurance deduction in this case.

Can a business use a QSEHRA or ICHRA and still write off health costs?

Yes. With QSEHRA and ICHRA, the business reimburses employees for premiums and medical expenses up to set limits, and those reimbursements are usually deductible to the employer and tax free to employees, as long as the rules are followed.

Do I need to itemize deductions to write off health insurance?

Not for the self-employed health insurance deduction. That one is an adjustment to income on Schedule 1 and does not require itemizing. If you do not qualify for that deduction, you may still be able to include premiums as medical expenses on Schedule A if you itemize, but that is subject to percentage of income limits.

 

Final Thoughts: Use The Rules, Do Not Fight Them

Health insurance will probably never feel “cheap.” But if you are a business owner, the tax rules give you several ways to reduce the pain:

• Deducting premiums you pay for employees as a business expense
• Using the self-employed health insurance deduction for your own coverage when you qualify
• Setting up HRAs, QSEHRA or ICHRA to reimburse health costs in a tax efficient way
• Using credits like the Small Business Health Care Tax Credit if you fit the criteria

You do not have to become a tax expert. You just need a solid health plan, clear records, and a tax professional who understands your entity type and your goals.

Savon Insurance Brokerage can help you with the first part by:

• Helping you compare health insurance options
• Explaining how different plan designs will show up on your books
• Working alongside your CPA so that the policies you buy actually support the tax strategy you want

Health insurance will always be a big line on your budget.
Handled the right way, it can also be one of your most powerful and legitimate write offs.