No, your LLC cannot treat health insurance premiums for your non-employee spouse as a business expense. However, if you’re self-employed and eligible, you may still deduct those premiums on your personal tax return under the self-employed health insurance deduction.
Health insurance is a common concern for entrepreneurs, especially if you’re trying to cover your family through your business. But just because you’re married doesn’t mean your LLC can write off your spouse’s insurance-unless they are also an employee of the company. The IRS has strict rules about what qualifies as a deductible business expense, and personal health costs for non-employees don’t make the cut.
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1. Business Expenses Must Be for Employees
According to IRS guidelines, your LLC can deduct the cost of health insurance premiums only if those premiums are part of a qualified benefits plan offered to employees. This means your spouse must be:
- A bona fide employee of the LLC
- Paid a reasonable wage
- On your business payroll with proper tax documentation
If your spouse does not work for the LLC, any payments made on their behalf are considered personal-not business-expenses. The LLC cannot deduct those premiums on its business return.
2. The Self-Employed Health Insurance Deduction
Even if your spouse isn’t an employee, you may still qualify for the self-employed health insurance deduction on your personal tax return. This deduction allows self-employed individuals-including single-member LLC owners-to deduct premiums paid for themselves, their spouse, and dependents.
To qualify:
- Your LLC must generate net income during the year
- You must not be eligible for other group health coverage (like through your spouse’s employer)
- The insurance plan must be in your name or the LLC’s name if you’re a sole proprietor
This deduction is taken “above the line” on your Form 1040, meaning it reduces your adjusted gross income (AGI), even if you don’t itemize deductions.
3. How This Changes With Business Structure
Whether your LLC can cover your spouse’s health insurance depends in part on how your LLC is taxed:
Single-Member LLC (Sole Proprietorship):
You can deduct health insurance premiums for your spouse under the self-employed health insurance deduction. The LLC cannot deduct them as a business expense.
Multi-Member LLC (Partnership):
If your spouse is a co-owner (partner), they may qualify to deduct their share of health insurance costs. But if they are not a partner or employee, you cannot deduct their insurance through the business.
LLC Taxed as an S Corporation:
If you own more than 2% of an S corp and your spouse does not work for the business, the S corp cannot treat your spouse’s health premiums as a business expense. However, if your S corp provides you with health insurance that also covers your spouse, you may be able to include those premiums as part of your W-2 income and take a personal deduction.
4. What If You Hire Your Spouse?
If you want your LLC to pay for your spouse’s health insurance directly and deduct the expense as part of a benefits package, you’ll need to hire your spouse as a real employee. This means:
- They perform regular, legitimate work for the business
- You pay them a reasonable wage
- You issue a W-2 and withhold payroll taxes
In this setup, the LLC can offer a family health plan as part of your spouse’s compensation. That plan can legally cover both your spouse and you, and the LLC can deduct the full premium as an employee benefit.
This strategy must be structured carefully and well-documented. The IRS will expect to see real work performed, appropriate pay, and proper recordkeeping.
5. Don’t Confuse Personal and Business Expenses
It’s important to keep your LLC’s expenses clean and compliant. Health insurance for a non-employee spouse is a personal cost, not a business deduction. If you improperly deduct it on your business tax return, you risk IRS penalties, interest, or an audit.
To stay in compliance:
- Pay personal insurance premiums from your personal account
- Take the self-employed health insurance deduction on your individual tax return, if eligible
- Consult a tax advisor if you’re unsure about your setup
Your LLC cannot pay for or deduct health insurance premiums for your spouse unless they are a legitimate employee. If your spouse doesn’t work for the business, you may still be able to deduct the premiums on your personal taxes using the self-employed health insurance deduction. The key is understanding the rules, keeping personal and business expenses separate, and structuring compensation properly if you plan to involve your spouse in the business down the line.
