Health Insurance Business Tax Deduction
for employees (and owners) under


IRC  Section §106

Group Health Insurance under IRS Code Section §106 is  tax deduction for both employer and not income to the employee.  It’s  the biggest break there is in the Tax Code, even more so than Mortgage Interest.

Providing Health Insurance is a GREAT way for EmployER’s to attract and retain better, stable, dependable workers.  It’s also the law for large employers (over 50 lives) to meet the mandate and for the employees in CA to meet the individual mandate.

Internal Revenue Code Section §106

(a)General rule

Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.

 

This allows Employers to deduct Group Health Insurance Premiums for their employees including the owners and officers, as long as it’s a qualifying Group Health Insurance plan as a business expense.

PLUS, Employees do not have to report employer paid premiums or the benefits in their gross income!

Scroll down or look to the right of your screen for more references to prove the deduction. Health Coverage Guide *

If your employees are contributing to the premiums, their portion can also be tax deductible by using a Section §125 POP (Premium Only Plan) or a cafeteria plan.

Employees whose employers do not currently provide Affordable Group Coverage, might qualify for Tax Credits Subsidies under Obamacare.

If the employees on their own want Medical Coverage – like going to Covered CA the premiums are not deductible unless they are more that 10 % of adjusted gross income.

Visit our webpage on writing off medical expenses. Line 40 Schedule A

References and Technical Links

IRS More Info on Health Care Arrangements to not have a group plan but pay for employee individual plans. IRS Notice 2013-54

IRS Publication — Business Expenses #535

Tax Guide to Fringe Benefits — Publication 15-B

 

Internal Revenue Code Title 26 USC

Cornell’s Site

GPO’s Site

Formilab’s Site

IRS Withholding Calculator

CA Franchise Tax Board

US Tax Court.gov Opinions Search

Tax Facts: Employer Deduction — Password-Protected Tax Facts on Insurance — Employee Benefits goes into very detailed explanations. It can be purchased for $99 or check their website for a trial subscription.

13 comments on “IRC §106 Health Insurance Deduction for Employers & Employees

  1. If I take a client, prospect, my web designer or another member of my profession to pick their brain to lunch, how much is tax deductible?

    • INTERIM GUIDANCE FOR BUSINESS MEALS

      taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

      1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
      2. The expense is not lavish or extravagant under the circumstances;
      3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
      4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
      5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. https://www.irs.gov/irb/2018-42_IRB#NOT-2018-76

  2. Can a company offer HIGHLY compensated employees 70% paid health insurance and 50% Aflac insurance and then offer only $450 to the other employees and 0% towards Aflac? I always thought that you had to treat people the same regardless of what the person makes with the exception of Part Time employees. Please help me to clarify this.

    • Please use the menu above and review the pages on management carve outs, Section 2716 salary discrimination and if you are in CA the get a quote or send your census feature. If you still have questions – please post there.

  3. I elected to put $2400/yr into a dependent care FSA. At the end of June, I had a qualified life event (my husband got a new job and it paid much less than his old job) and my company’s HR dept allowed me to make changes to my benefit elections mid-year. With my husband’s income reduced, we would no longer be able to afford expensive daycare after school, but would need to move to a cheaper option (ASP program at the school instead of private day care), so I stopped contributions to the dependent care FSA. Unfortunately, I already signed the kids up for summer camps in April and May so there was no getting out of that expense. I had $1,200 in my dependent care FSA at the time of this change (1/2 the yr). When I submitted my claims for the summer day camps, they were denied because the camps didn’t take place until July/Aug and I no longer had dependent care FSA coverage. Since I contributed that money, and I’m still with my employer, don’t I have the whole year to use the funds I contributed at the beginning of the year before the qualified life change?

  4. I am employer that funds a HDHP and HSA’s for all employees.

    Have employee with an adult child who can no longer be considered a dependent. Adult child needs to open her own HSA but is still covered on HDHP for two more years.

    Can employer contribute to adult child’s HSA? If so, are there any tax advantages?
    Thank you.

  5. As the employer, I have employee that has an adult child who needs to set up her own HSA account because she graduated college and got married. Adult child is covered on parent’s HDHP funded by my company. Can employer contribute to adult child’s account? If so, does employer receive any tax advantage?

  6. 1) I have an employee who has medical coverage through his wife’s employer and her coverage is a group plan not an individual plan.

    2) The employer requires her to pay for the premium difference between an individual policy and the couples plan they are on.

    3) When I hired him, he asked if I would cover / reimburse the premium amount that gets taken out of his wife’s paycheck.

    4) If I elect to pay / reimburse him the amount of premium her employer deducts, is that considered taxable income to him (my employee)?

    5) Should I add that amount to his salary through payroll or can I write him a separate non-taxable check directly out of my checking account?

    Note – numbering was done by the webmaster for more clarity when responding.

    • 1) That’s great as individual plans can’t be used under ObamaCare by Employer Group’s. See our FAQ page for more info.

      Since your employee is covered by a spousal group plan, that is a permitted waiver and won’t count as a negative in the minimum participation percentage required by your Insurance Company.

      2) So, you mean that he’s charging full price for dependents and by individual you mean the employee only rate.

      3) The wife might check into a Section 125 POP Premium Only Plan or Section 125 Cafeteria Plan (we will be updating that page), so that the portion she pays from her paycheck is tax deductible.

      4) Here’s a citation Private Letter Ruling 9406002 IRC Section 61 that clearly says you cannot do this, without it being taxable, unless you have a Section 125 Cafeteria plan.

      5) It would be taxable as salary, unless you have a Section 125 cafeteria plan.

      3,4 & 5) Does your firm have a group plan that he is eligible for? How many employees do you have? Are you willing to make this plan available to all employees who can be a dependent on a spousal plan or other MEC Minimum Essential Coverage plan, other than Individual Plans? That is, not discriminate because of salary Section 2716?

      We do not give tax or legal advise. Just use and interpret the citations on your own or check with competent professionals.

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