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Article Date:
December 2015

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Triple Tax Advantages: Reimburse Your Employee-Spouse for Health Insurance

If you are self-employed or a single-member LLC taxed as a proprietorship and you have your spouse as your only eligible employee, you can gain significant tax savings by reimbursing your employee-spouse for an individual health insurance policy purchased through a public health insurance exchange (including family coverage that covers both spouses and dependents).


Structuring the reimbursement correctly creates a business expense deduction, saves on employment and income taxes for the business and the spouse, and helps the owner and spouse avoid tax penalties under health care reform.


With health care reform’s individual mandate now in full force, every U.S. citizen must carry health insurance coverage (called “minimum essential coverage”) or risk paying a tax penalty.1 Individuals may obtain that coverage through employer plans (called group plans), government-sponsored programs (like Medicare, Medicaid, or military insurance), or through newly formed state health insurance exchanges.


If the insurance is purchased through an exchange, individuals may receive premium tax credits—government subsidies to help pay the insurance premium cost. To receive subsidized coverage, an individual must have a low income (not more than 400 percent of the federal poverty level) and must not be eligible for an employer-sponsored group plan.2


Like all U.S. citizens, business owners and employee spouses will want to avoid the individual mandate tax penalty by obtaining health coverage.


But unlike other citizens, proprietorships have the opportunity to cash in on some tax savings in the process of obtaining their coverage. Specifically, owners and employee spouses can enjoy a triumvirate of tax benefits when they establish a reimbursement plan for premiums relating to exchange coverage for the spouse. ... Log in to view full article.

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