Triple Tax Advantages: Reimburse Employee-Spouse for Health Insurance

If you operate a sole proprietorship or a single-member LLC taxed as a proprietorship and your spouse is your only eligible employee, you can take advantage of tax-free health insurance reimbursements while reducing your tax liability.

Key Tax Benefits

By reimbursing your employee-spouse for health insurance and medical expenses, you can achieve up to four tax benefits:

1. Tax-free benefit for your spouse – The reimbursement is not taxable income for your spouse.
2. Avoid the $100-a-day penalty – Small businesses with one employee can legally reimburse individual health insurance without triggering Affordable Care Act penalties.
3. Business deduction – Your proprietorship deducts the full reimbursement as a business expense, reducing income and self-employment taxes.
4. Potential Premium Tax Credits – If your household income qualifies, your spouse may still receive government subsidies for health insurance purchased through an exchange.

How the Plan Works

To ensure full compliance and maximize tax benefits, you should

• put the reimbursement plan in writing under IRS Regulation Section 1.105-11(b);
• make it a family plan that covers you, your spouse, and your dependents; and
• require your spouse to submit medical expenses monthly.

If you have no other employees and your spouse actively works in your business, this is a simple and effective way to reduce taxes while covering your family’s medical costs.

If you want to discuss this medical plan, please call me on my direct line at 408-778-9651.