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Tax-Free Medical Expenses Through the Business

Posted by: Rod Kurtz on December 30, 2005

Owners of a regular “C” corporation can benefit from receiving tax-free medical expenses paid through the company. But if you’re a sole proprietor, partnership, or an “S” corporation, these same expenses aren’t normally deductible.

Still, there’s a way you may be able to get tax-free medical expenses through the business by setting up a medical reimbursement plan. Under this plan, you can deduct 100% of your medical insurance premiums and out-of-pocket costs as a business expense. While not every business qualifies, if you meet the following criteria, you might be able to take a bite out of your tax bill:

1. You must be married.
2. Your spouse must be an employee of the business. Under the plan, the business provides the benefit of reimbursing employees’ medical expenses. As an employee, your spouse is eligible for this benefit.
3. You can’t discriminate. If you provide the benefit to your spouse, you must also provide it to other qualified employees. You can specify that only permanent full-time employees who have worked for at least one year qualify. If you have a couple of part-time or seasonal employees, and only your spouse is permanent full-time, guess who’s the one and only employee to qualify for the benefit?
4. The plan must be in writing.

If you meet these “quick-test” criteria, talk to your accountant or another professional who can help you determine if a medical reimbursement plan is right for you.

Gene Fairbrother
ShopTalk 800® Business Consultant
National Association for the Self-Employed

Reader Comments

Smarter Than Gene

September 24, 2008 11:43 PM

Are you daft?! An S Corp can't have a MRP! The spouse is viewed as being the same entity as any >2% s/h of an S Corp you idiot!

mother nature

February 6, 2009 3:13 PM

Smarter than Gene needs to learn etiquette and manners!

Always Learning

July 24, 2009 12:51 PM

It seems that Smarter Than Gene isn't writing to benefit readers; only tries to appear smarter than Gene.

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