330 / May an employer deduct as a business expense the cost of premiums paid for accident and health insurance for employees?

An employer generally can deduct as a business expense premiums paid for health insurance for employees. This includes premiums for medical expense insurance, dismemberment and sight loss coverage for the employee, his or her spouse and dependents, disability income for the employee, and accidental death coverage.

Premiums are generally deductible by an employer when coverage is provided under a group policy. See Q 456 for a discussion of the consequences of employer reimbursement for the cost of employees’ individual policies.

The deduction for health insurance is allowable only if benefits are payable to employees or their beneficiaries; it is not allowable if benefits are payable to the employer.¹ Where a spouse of an employer is a bona fide employee and the employer is covered as a family member, the premium is deductible.² A corporation can deduct premiums it pays on group hospitalization coverage for commission salespersons, regardless of whether they are employees.³ Premiums must qualify as additional reasonable compensation to the insured employees.⁴

If a payment is considered made to a fund that is part of an employer plan to provide the benefit, the deduction for amounts paid or accrued may be limited ( Q 4057).

An accrual basis employer that provides medical benefits to employees directly instead of through insurance or an intermediary fund may not deduct amounts estimated to be necessary to pay for medical care provided in the year but for which claims have not been filed with the employer by the end of the year if filing a claim is necessary to establish the employer’s liability for payment.⁵

In the case of a plan covering stockholder-employees only, see Q 346; in the case of an
S corporation, partnership, or sole proprietorship employer, see Q 347 and Q 348.

Where health benefits are provided through a fund, see Q 490.