Taxes and medical deductions can be enough to give anyone a headache. Business owners have to keep track of health expenses for themselves and their teams, and the rules don’t make it easy. Worrying about missing deductions or triggering red flags can keep you up at night.
Understanding how medical deductions work is one of the best ways to save money and feel more in control. With the right approach, you can turn those complex rules into real savings for your business and yourself. Let’s start with some common questions.
Can you deduct medical expenses if you're self-employed?
Self-employed people and S-Corp owners can deduct medical and dental expenses by itemizing them on Schedule A. This deduction kicks in only when those expenses are more than 7.5 percent of your adjusted gross income. If you usually take the standard deduction, large medical bills might make itemizing worth it.
These deductions include costs for you and your dependents. Even small bills can add up once you cross that threshold.
Can self-employed people deduct health insurance premiums?
Yes, they can. Self-employed people, partners, and S-Corp owners with more than 2 percent of the company can claim an “above-the-line” deduction for health insurance. This deduction lowers your taxable income even if you’re not itemizing everything else.
This only works if you or your spouse doesn’t have access to an employer-sponsored plan. Your business also needs to have enough profit to cover the insurance costs. Planning ahead in good years can help you get the most from this deduction.
Why are health insurance deductions complicated for S-Corp owners?
S-Corp owners with more than 2 percent ownership have to handle insurance premiums a bit differently. The S-Corp includes these premiums as wages on your W-2, but you don’t pay Social Security or Medicare taxes on them.
You can still claim these premiums on your personal tax return. To make sure everything lines up, keep careful records and follow the IRS rules about how the business pays for insurance.
What about benefit plans and reimbursement accounts?
S-Corp owners face some limits here. They can’t use Health Reimbursement Arrangements (HRA) without paying taxes on the reimbursements. However, employees might be able to use plans like Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) or Individual Coverage Health Reimbursement Arrangements (ICHRA) depending on your company’s size and needs.
QSEHRAs work well for small companies with fewer than 50 people. ICHRAs can fit any size business and let you customize health benefits for your team.
How do HSAs help save on taxes?
Health Savings Accounts are a powerful tool. They let you lower your taxable income, grow money tax-free, and pay for medical expenses without extra taxes.
You don’t have to spend everything in your HSA by the end of the year, which makes them more flexible than other health accounts. Pay attention to the IRS contribution limits so you can make the most of this triple benefit.
How to Offer Employee Health Benefits the Right Way
Offering health insurance to your team has real advantages. It helps with employee retention and gives your business a valuable tax deduction.
Companies with 50 or more full-time employees must offer basic coverage under the Affordable Care Act. Following the rules around nondiscrimination is also key. This keeps you from accidentally giving better benefits to owners or top employees and facing penalties later.
Maximizing Medical Deductions for Your Business
Timing is everything when it comes to medical deductions. Think about when to spend on big health costs to make the most of your deduction. Run insurance premiums through your business where it makes sense and explore reimbursement accounts carefully.
Good record-keeping is your best friend here. Save everything that relates to medical expenses so you’re ready when tax season arrives.
Common Mistakes S-Corp Owners Make with Medical Deductions
It’s easy to trip up on these rules. Some S-Corp owners claim deductions that only apply to employees or mishandle paperwork for insurance reimbursements and HRAs. This can mean missed deductions or surprise taxes later.
Another area to watch is the “attribution” rules. These determine how the IRS sees your relationship to the business and can cause unexpected problems if you’re not careful.
The Bottom Line
Medical deductions can feel overwhelming. But you don’t have to let the confusion stop you from getting what you’re owed. Learn what you can claim, keep good records, and don’t be afraid to ask a tax professional for help.
The payoff is real. Every dollar you deduct is a dollar that stays with you and your business. With a little planning, you can turn the stress of tax season into an opportunity to feel more secure about your finances.
Ready to take the next step? Start by reviewing your medical expenses and checking which deductions you might be missing. A few simple steps now can mean more savings and fewer worries later.
