As a small business owner, offering employees affordable health insurance may be one of your biggest concerns. The expense of covering employees—including your own family—can be costly. Paying for health insurance can be challenging, but as a business owner, there are many other things you have to consider. The government has different regulations you must follow depending on the structure of your business. If you have a limited liability corporation (LLC), here are some specific details you should know.
What is a limited liability corporation (LLC)?
When you launch a business, you have several options on how to structure the company. Each of these business structures may have various legal and tax implications, depending on where you live.
One popular business structure is a limited liability corporation or LLC. This is for people who want legal separation from their business—without the higher costs of other business entities. It’s easy to form an LLC, and you may enjoy the flexibility of filing taxes as a single-member LLC (basically a sole proprietor), partnership, S corporation, or C corporation. Each of these options impacts your company’s options for health insurance.
Health insurance options for LLC owners
After setting up your company's business structure, you may be wondering if you can qualify for health insurance through your LLC.
The short answer: it depends.
The company’s tax filing will impact your options. They may fall into one of two categories—either you buy health insurance individually or qualify for a company group health insurance plan.
Here’s a breakdown of each option:
LLC filing as a sole proprietor - If you're a single-member LLC, taxed as a sole proprietor, you personally won’t qualify for a group health insurance plan through your company. However, you can still purchase a policy on your own. It can be expensive to cover the premiums, but fortunately, you can deduct 100% of the cost on Schedule 1 of your tax return.
LLC filing as a partnership - If the company is a partnership with two or more owners, also called “members”, you may have the option of qualifying for the company’s group insurance plan—or, you can buy health insurance on your own. If you purchase insurance on your own, you may deduct 100% of the cost like sole proprietors. The tax deduction for a company plan happens on Form 1065 and Schedule K and K1.
LLC filing as an S corporation - For S corporations, the company may deduct health insurance premiums for employees or shareholders. If shareholders own more than 2 percent of the company, the business must add the cost of premiums to the shareholder’s W-2. If the shareholder qualifies, they may also deduct the expense on Schedule 1.
LLC filing as a C corporation - If you file taxes as a C corporation, the company may deduct the full cost of employee health insurance on Form 1120. Employees may enjoy the benefit of health insurance tax-free.
Seek guidance for your company’s health insurance
Most small business owners don't have tax or legal expertise, which is why you may need local guidance. Before choosing a business entity, speak with a local attorney who can share state-specific advice. After that, you can work with a local tax professional on the best options for filing taxes as an LLC. They can walk you through your company's health insurance goals—and how each option may impact your taxes.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.