Can a startup expense an employee's health insurance premiums?


2

As a proposed company policy, is it a legal/good idea for employees to just expenses their health care premiums? (By "expense", I mean submit an expense report and get a check that has nothing to do with payroll.) Does this count as "fringe benefits" in the IRS sense that would be required to show up on my W2?

EDIT: Years later, different company. We ended up getting group insurance even though we're only 2 people. I recommend it.

Insurance Health Insurance Expenses

asked Mar 10 '12 at 05:15
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Brad
117 points
  • Instead of acting as a health insurer why not just pay for their premiums? Might be less expensive in the long run. – Karlson 7 years ago
  • Yeah, the premiums. Employees are expensing the premiums, not the medical bills themselves. I just was wondering if the IRS allows this unusual behavior. – Brad 7 years ago
  • Since insurance as a young male is about ~$80/mo and if I run it through a company account it's ~$250/mo we tend to just give them a slight raise and they cover insurance on their own direct. So, it shows up as normal payroll money to them. Something like this isn't uncommon for small companies. – Ryan Doom 7 years ago

3 Answers


3

I'm not in a position to offer specific tax advice for your situation, but this IRS publication on employer fringe benefits might be helpful to you: http://www.irs.gov/publications/p15b/index.html

answered May 9 '12 at 10:51
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Henry The Hengineer
4,316 points

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One way to legally reimburse employees for their health insurance premiums is to set up an Health Reimbursement Arrangement (HRA) for your employees. This is usually a very cost effective way to provide employee benefits for your employees.

To implement an HRA, you allow each of your employees to select their own individual plans - which will also allow them to be eligible for tax subsidies through their state health exchanges, starting January, 2014. Then, you - the employer - decide on a monthly allowance to grant your employees, which they can use for eligible medical expenses, including health insurance premiums. As the HRA owner, you can limit the eligible expenses to reimburse premiums only under your company's specific HRA, if that is what you want.

In addition to giving the employer control and predictability over cost it allows your employees to have more choice and awareness over their insurance and medical expenses. It's really a win-win situation, and a great option for start-up companies and small businesses rather than buying an expensive group health insurance plan.

answered Aug 31 '13 at 04:54
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Jackie At Zane
1 point
  • We ended up getting group insurance that was cheaper than what each of us was paying for our individual insurance, but this is a good tip. – Brad 5 years ago

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If you're a sole-proprietor, the premiums are written off on your 1040, line 29. I'll let others answer for other business types.

answered Mar 10 '12 at 07:09
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B Mitch
1,342 points

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