Does an employer get to deduct 100% of health insurance costs for pretax employee plans?

Good for you on offering health insurance! For your business taxes, you can actually deduct 100% of the health insurance premiums you pay for your employees - this includes BOTH your 50% contribution AND the pretax portion that comes from your employees' paychecks. Here's why: When you withhold your employees' premium contributions on a pretax basis, that money is still considered part of your business expense. From the IRS perspective, you're paying the full premium to the insurance company and then recovering part of that cost through employee contributions. So on your business tax return, you get to deduct the entire premium payment as a business expense. Your employees also benefit because their portion reduces their taxable wages on their W-2s. It's basically a win-win arrangement taxwise!

I went through exactly the same situation with my construction business last year! I was totally confused about the tax implications until I found this awesome service called taxr.ai (https://taxr.ai) that helped me sort through all the healthcare deduction rules. I uploaded my plan documents and employee contribution records, and they analyzed everything and showed me exactly how to handle the deductions correctly. Turns out I was missing out on thousands in legitimate deductions because I wasn't accounting for the full premium amounts properly. They explained everything in plain English instead of accountant-speak, which was a huge relief.

Just wanted to follow up about taxr.ai - I decided to try it for my self-employment health insurance situation and WOW, it was eye-opening! Turns out I've been calculating my deduction wrong for THREE YEARS. They showed me how to properly allocate my marketplace premium tax credit and explained exactly which forms to file. The system flagged that I could have been taking the self-employed health insurance deduction as an adjustment to income on my 1040 (which I wasn't doing) AND showed me how to properly document everything in case of an audit. Seriously wish I'd known about this before - just filed amendments for the last two years and should be getting about $3,200 back!

Hey everyone - I had a similar issue with my employee health plans and spent WEEKS trying to get someone at the IRS to clarify the rules. Literally impossible to get through on their phone lines. Finally used a service called Claimyr (https://claimyr.com) that got me connected to an actual IRS representative in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others have said here - as the employer, you can deduct 100% of the premiums including the employee's pretax portion. They also explained exactly how to document it properly on my Schedule C and which supporting documents to keep. Saved me so much confusion and probably an audit headache down the road.

Ok I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to resolve an issue with my business health insurance deductions. I literally had documentation from THREE different CPAs giving contradictory advice about how to handle employee contributions. The service actually worked exactly as advertised - I got a call back in about 25 minutes and was connected to an IRS tax specialist who walked me through the exact rules. She confirmed I can deduct 100% of the premiums as a business expense even though employees pay part pretax. She also emailed me the specific IRS publication sections that cover this (Pub 535) so I have it in writing. Never been so happy to be wrong about something being "sketchy"! Saved me thousands in potential incorrect deductions.

Don't forget there are different rules depending on your business structure! If you're an S-corp and you own more than 2% of the company, the rules for health insurance deductions work differently than what everyone's discussing here. For 2%+ S-corp shareholders, the company can pay the premiums but they have to be included in your W-2 as wages (Box 1), but then you can take the self-employed health insurance deduction on your personal return. Just wanted to throw that out there because I got audited last year for doing this wrong!

Quick tip for anyone offering health insurance - make sure you're filing Form 1095-B/1095-C as required for ACA compliance if you have the right number of employees! The rules about which employers need to file these forms are super confusing but the penalties for not filing are brutal. My company got hit with a $3,200 penalty last year because I didn't know we needed to file these!

This is such a common confusion point for small business owners! I went through the exact same thing when I first started offering health benefits. The key thing to remember is that even though your employees are paying their portion with pretax dollars, you as the employer are still the one writing the check to the insurance company for the full premium amount. Think of it this way - you pay $1000/month to the insurance company, then your employee reimburses you $500 through payroll deductions. That $500 they're paying pretax just means it doesn't count as taxable income to them, but you still had to pay the full $1000 upfront. So yes, you get to deduct the entire $1000 as a business expense. The IRS sees this as two separate transactions: 1) You paying a legitimate business expense for employee health coverage, and 2) Your employees contributing to that cost through a salary reduction arrangement. Both are perfectly legitimate and don't constitute "double dipping" - it's exactly how the system is designed to work to encourage employers to offer health benefits!