Before we dig too deep I just wanted to mention that a little while back we did an entire series on health related tax strategies on both our Blog and Small Business Tax Savings Podcast so if you want to take what we talk about today and dig deeper, you will want to check those out!

Taking care of your health is so important and often times as a busy professional something that gets put to the side. There is also tax planning that comes into play when we talk about various aspects of health and that is exactly what we want to outline today.

How Does the Deduction For Self-Employed Health Insurance Work?

Basically, if you are self-employed you will always get a business deduction for the health insurance costs you incur. Be careful though, if you are part of one of those medical sharing plans, those are not technically considered health insurance, so those would not be deductible through the business.

Now, depending on how your business is setup will determine how you get the actual deduction and it is important that this is done correctly. We have an entire Blog and Podcast episode on this, How Does the Deduction For Self-Employed Health Insurance Work?, but here is a summary:

• Sole Proprietor or Single Member LLC
  • Simply deduct self-employed health insurance premiums on Schedule 1 of your personal tax return (1040).
• S Corporation Owner
  1. Have the S Corp pay for the insurance
  2. Add it to your W2 payroll as S Corp owner self employed health insurance. Your payroll provider should know how to handle this, just be sure to let them know and ask questions if needed.
  3. Deduct on your personal tax return (Schedule 1)

If you have non-owner employees and provide health insurance benefits (either partly or fully) you will get a deduction for your costs for them too. Be sure to also include that amount on the employees W2 in Box 12 with code DD.

What Options Are Available to Business Owners With High Medical Costs?

Unfortunately sometimes life hits you and medical costs (over and above insurance) start to rise. Fortunately for business owners there are options available on where you can possibly get a business deduction for those items.

This specific section would be for solo business owners with just themselves or a spouse as an employee.

We have an entire Blog and Podcast episode on this, What Options Are Available to Business Owners With High Medical Costs?, but here is a summary:

• You can utilize a Section 105 Plan to turn personal medical expenses into a business deduction.

• You would need to ensure you have the correct paperwork and plan designed (this is key) but then it would reimburse the employee (you or your spouse) for medical costs incurred.

• Depending on the way your business is setup and if you are single or married will determine the best way to setup a plan like this.

As mentioned if you are facing high medical costs (typically we say $4-5k or more) over and above insurance costs, check out the full Blog and Podcast episode we did on this one.

What Health Benefit Options are Available for Small Businesses With Employees?

If you are a business owner with employees you may be looking for options available to you and there are definitely various different routes you can go down. For this discussion we assume you have less than 50 employees.

We have an entire Blog and Podcast episode on this, What Health Benefit Options are Available for Small Businesses With Employees?, but here is a summary:

• Some of the main options are: Group Health Insurance, Increase Wages to Cover Costs (Taxable), Setup an HRA or QSEHRA
• For those small business with roughly 25 or less employees, we love the QSEHRA option.
  • A QSEHRA is an HRA that is available to employers with fewer than 50 full-time equivalent employees that do not offer a group health insurance policy.

  • With a QSEHRA, employers reimburse employees tax-free for medical expenses (including health insurance premiums).

  • With a QSEHRA, you can offer yearly allowances up to $6,150 for single employees and $12,450 for employees with a family in 2024.

  • All employees must receive the same allowance amount, except in cases regarding an employee’s family status.

  • All full-time employees are eligible and businesses can decide on part-time employee eligibility.

If you are looking for more information on the options available, check out our full Podcast and Blog post on this topic.

Just know there are some rather easy options available to you. Do not be like me when I first got started in business, afraid to hire because I thought need to provide health benefits would be very hard and expensive. With the options available out there it doesn't have to be this way.

What Is An HSA and How Do They Work?

A health savings account (HSA) is one tool that I think everyone should be taking advantage of, whether you are a business owner or not.

We have an entire Blog and Podcast episode on this, What Is An HSA and How Do They Work?, but here is a summary:

• You get a tax deduction for the funds you contribute into an HSA.
  
• Withdrawals are tax free if used for qualified medical expenses. 
• Interest or earnings with-in the HSA are NOT taxed.

It is a rare tool that the IRS lets you "win" on both ends, the contribution and the withdrawal. For this reason we recommend everyone (business owner or not) be maxing out their HSA contributions, if they qualify and can afford it.

The main thing is you need to have a high deductible health plan in order to qualify for an HSA.

The maximum you can contribute into an HSA for 2024 is $4,150 for self-only or $8,300 for families.

Many people look at an HSA as a savings vehicle because there is no tax on the interest or gains earned within it and you know at some point you'll need funds for medical expenses. This means that even if you do not have high medical costs today, it can still be a great savings vehicle.

Summary

Hopefully this was helpful and as mentioned we did a deep dive into all of these topics last year so if you want to learn more about any of the topics discussed today, check out our Blog or Small Business Tax Savings Podcast!

• How Does the Deduction For Self-Employed Health Insurance Work?
• What Options Are Available to Business Owners With High Medical Costs?
• What Health Benefit Options are Available for Small Businesses With Employees?
• What Is An HSA and How Do They Work?