You made it through another tax season — congrats! But here’s a question: if you provide health insurance and other benefits to your employees, did you take advantage of the tax deduction for contributing to their premiums? It’s a great opportunity, but your business structure plays a big role in what’s possible. Let’s break it down so you’re ready to maximize your savings next year.
Sole Proprietors
If your business is a sole proprietor or single-member limited liability company, you can take a deduction on premiums paid using a personal income adjustment. It is not an itemized deduction. (Ask your tax advisor for details.)
Business Partnerships
If you are in a business partnership, part of a Limited Liability Company (LLC), or a shareholder with two percent or more of stock in an S corporation, things are a little more complicated. Talk to your tax advisor to see if you can deduct health insurance on your federal and state income taxes.
Other Business Types
Premiums you pay for employees’ health insurance, including coverage for their spouses and eligible children if you contribute to those premiums, are fully deductible as a regular business expense. You can deduct these expenses from your business’s federal income taxes as well as your state income taxes.
Additional Business Deductions
If your employees are enrolled in a High Deductible Health Plan (HDHP) and you contribute to their Health Savings Accounts (HSAs), those contributions are usually tax deductible for your business. Contributions are limited to amounts set annually by the Internal Revenue Service.
For 2025, HSA contributions are limited to $4,300 for self-only health insurance coverage and $8,500 for family coverage. For those aged 55 and older, an additional $1,000 is permitted as a catch-up contribution.
Small businesses that can’t sponsor a group health plan might still qualify for other tax benefits. For example, under federal law, some qualifying businesses may fund special health care reimbursement accounts. These can be used to fund the private purchase of individual or family health insurance plans by employees.
Employers with fewer than 50 employees can offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). A QSEHRA allows small businesses to provide non-taxed reimbursement of certain health care expenses, such as health insurance premiums and coinsurance amounts. More information is available on QSEHRAs on the HealthCare.gov website.
In addition to tax advantages, offering health insurance can help your business save by reducing your payroll taxes. And, of course, it can also help you attract and retain top employees.
Changing Tax Rules
Tax laws can be tricky and are always changing, so it’s a smart move to consult a tax professional for guidance. Every business is unique, and understanding the federal and state rules that apply to yours is key to staying compliant and avoiding surprises. Don’t navigate it alone — get the advice you need to stay on top of your taxes.