-min%20(1).avif)
-min.avif)
-min.webp)
Sole prop, S-corp, or LLC — your structure determines which plans you can deduct
You're running a small business with fewer than 10 employees, and you need group health insurance. Your business structure and whether you have W-2 employees determine which plans you can access, which tax deduction you qualify for, and what setup work is required. Get the structure wrong — especially if you're an S-corp owner — and you lose the deduction entirely.
Here's how to choose coverage, deduct it correctly, and avoid leaving money on the table
What Your Options Are as a Small Business Owner
Your starting point depends on whether you're considering coverage options yourself, your employees, or both. Four options apply to most small employers with fewer than 10 employees.
The Affordable Care Act (ACA) Marketplace (Healthcare.gov)
The individual health insurance marketplace is your most likely starting point if you're paying yourself and don't have W-2 employees to cover. Plans are standardized across four tiers — Bronze, Silver, Gold, and Platinum — and you purchase them directly through Healthcare.gov or your state's exchange.
What makes this path straightforward: Starting a business qualifies as a special enrollment period. You can enroll within 60 days of the qualifying event, so you don't have to wait for the annual open enrollment window (November 1 through January 15).
What most owners miss: Subsidies are available based on income. Many self-employed owners qualify for premium tax credits that can help reduce monthly costs. Since income fluctuates when you're building a business, run the numbers before assuming you don't qualify. The Healthcare.gov subsidy calculator gives you a real number in under five minutes.
Who this fits: Sole proprietors, single-member LLCs, S-Corp owners covering themselves (not employees), and self-employed individuals such as freelancers, consultants, or independent contractors.
If you're paying yourself a salary as an S-Corp owner, read the business structure section before you shop. The deduction mechanics are different and getting it wrong can cost you money.
The SHOP Marketplace
If you have W-2 employees you want to offer health benefits to, the Small Business Health Options Program (SHOP) is designed for businesses with 1 to 50 employees. You control contribution levels and may qualify for the Small Business Health Care Tax Credit if you have fewer than 25 full-time equivalent employees, average wages below $68,200 per year, and pay at least 50% of employee-only premiums. The full credit (50% of premiums) is available to businesses with 10 or fewer employees and average wages at or below $34,100.
The credit covers up to 50% of premium costs for two consecutive years.
Requirements: At least one W-2 employee other than yourself. Some states run their own SHOP exchanges; others use the federal platform. Visit Healthcare.gov/small-businesses to find your state's options. Availability and plan options vary by state.
Who this fits: Owners with 1 to 9 W-2 employees who want to offer health coverage.
Private Insurance and Brokers
Working with an independent broker or licensed agent gives you access to insurance companies and group health insurance plans that may not appear on the public marketplace. Brokers are paid by the insurer, not by you, and can surface off-exchange plans, walk you through total cost comparisons (premium plus out-of-pocket), and handle enrollment paperwork.
SurePayroll By Paychex works with the Paychex Insurance Agency*, an experienced group of licensed insurance agents, who can help you find the right health care solutions and plans for you, your small team and your budget.
Who this fits: Owners who want guidance from a licensed agent, need off-exchange options, or prefer talking through decisions rather than clicking through comparison tools.
Compare health insurance plans with a licensed agent.
A Spouse's or Partner's Plan
If your spouse or partner has employer-sponsored coverage, joining their plan is often the most cost-effective option. Employer-sponsored plans typically carry lower premiums because the employer absorbs part of the cost.
What to compare: Your spouse's plan premium (with you added) versus a marketplace plan with subsidies. If your household income qualifies you for significant tax credits, an individual marketplace plan can sometimes be cheaper than the spousal add-on cost, especially if your spouse's employer doesn't subsidize dependent coverage.
Once you've chosen a plan, the SurePayroll small business payroll service can help streamline premium reimbursements.
How Your Business Structure Changes the Math
Choosing a plan is only part of the decision. How you pay for coverage, and whether you can deduct it, depends on your business structure. Getting the setup wrong can cost you in lost tax benefits.
Sole Proprietor or Single-Member LLC
You can deduct 100% of your health insurance premiums directly from your gross income using the self-employed health insurance deduction. It applies to premiums you pay for yourself, your spouse, and your dependents.
How it works: You claim it on Schedule 1 of Form 1040. The deduction reduces your adjusted gross income, which can also lower your self-employment tax and affect marketplace subsidy eligibility. No payroll setup required.
Limits: You can't deduct more than your net self-employment income for the year. If your business earned $30,000 in profit and you paid $12,000 in premiums, you can deduct the full $12,000. If your business earned $8,000, your deduction is capped at $8,000. If you run your business without any employees, you do not qualify for group coverage.
Subsidy interaction: If you qualify for ACA premium tax credits, you cannot also take the self-employed health insurance deduction for the same premiums. Choose the option that saves you more. A tax professional can help you calculate which option could save you more based on your specific income and family situation.
See the SurePayroll guide to self-employed tax deductions.
Learn how to pay yourself as an LLC.
S-Corp Owner
You can deduct health insurance premiums if those premiums are included in your W-2 wages. The S-Corp pays the premiums (or reimburses you), adds the premium amount to your W-2 as taxable wages, and you claim the self-employed health insurance deduction on your personal return.
Why the W-2 step matters: Health insurance premiums paid by the S-Corp are treated as wages for income tax purposes but are exempt from Social Security and Medicare taxes. You only get that benefit if the premiums run through payroll and appear on your W-2.
What happens if you skip it: You pay premiums out of pocket; the S-Corp doesn't reimburse you, and you can't deduct them. Or the S-Corp pays them but doesn't add them to your W-2, and the IRS disallows the deduction. Either way, you paid for coverage you can't write off.
How SurePayroll can help: SurePayroll is built for S-Corp owners paying themselves a salary. You add your monthly premium as a reimbursement, and SurePayroll helps you keep track through year end. Your W-2 includes the premium amount in Box 1 (wages) while excluding it from Social Security and Medicare wages, so your paperwork is ready for tax season.
Consult a tax advisor to confirm this setup matches your specific S-Corp structure and compensation arrangement.
Partnership or Multi-Member LLC
Health insurance coverage premiums are typically handled as guaranteed payments and reported on your Schedule K-1 (Box 4). You claim the deduction on your individual tax return using the self-employed health insurance deduction.
Consult with a tax professional to confirm your partnership agreement and payroll practices align with IRS requirements.
What Coverage Costs and What Moves the Number
According to the Kaiser Family Foundation's 2024 Employer Health Benefits Survey, the average annual premium for employer-sponsored single coverage was $8,951, and $25,572 for family coverage. Individual marketplace premiums vary more widely based on subsidy eligibility.
In practice: A 40-year-old sole proprietor buying Silver-tier marketplace coverage might expect $400 to $700 per month before subsidies, depending on state. Add a spouse and two kids, and that could jump to $1,400 to $2,000 per month. Subsidies can help manage that cost.
What Moves the Number
Age: Premiums increase with age. A 55-year-old can pay two to three times what a 30-year-old pays for the identical plan.
Location: State and county matter as much as age. A Silver plan in Miami might cost $500 a month; the same tier in rural Wyoming might cost $850.
Family coverage: Adding a spouse or dependents substantially increases the premium. Individual coverage might run $500 per month; family coverage for the same tier might hit $1,600.
Tobacco use: Insurers can charge tobacco users up to 50% more than non-users.
Marketplace subsidies: Premium tax credits are available based on household income and family size. If your modified adjusted gross income falls between 100% and 400% of the federal poverty level, you likely qualify. Use your projected annual income, not last year's tax return.
You know what coverage costs and how your structure affects the deduction. Now here's how to get from decision to enrolled.
How to Get Small business Health Insurance Coverage: Your Next Steps
Four steps take you from decision to enrolled. The order matters, especially if you're an S-Corp owner who needs payroll set up before you can deduct premiums.
Step 1: Confirm Your Business Structure and Deduction Setup
Sole proprietor or single-member LLC: No payroll required. You'll deduct premiums on Schedule 1 of your personal tax return. Shop for coverage now and handle the deduction at tax time.
S-Corp owner: You must run payroll and include health insurance premiums in your W-2 wages to qualify for the deduction. If you're not already paying yourself a salary, set up payroll before you enroll.
The SurePayroll one-employee payroll solution helps automate W-2 inclusion by adding your premium as a reimbursement so your W-2 is correct for tax season.
Partnership or multi-member LLC: Confirm with your tax advisor how premiums will be treated — guaranteed payments, K-1 reporting, or another method.
Step 2: Get a Real Cost Estimate and Choose a Plan
Use the Healthcare.gov plan preview tool: Browse plans and see premium estimates without creating an account. Enter your zip code, age, household size, and estimated income. The tool shows Bronze, Silver, Gold, and Platinum options with subsidy-adjusted premiums if you qualify.
Or work with a broker: SurePayroll workswith the Paychex Insurance Agency*, an experienced group of licensed insurance agents, who can help you find the right health care solutions, insurance companies, and plans for you, your small team and your budget.
How to choose a tier: The Affordable Care Act (ACA) standardizes plans into four tiers based on how costs are split: Bronze, Silver, Gold, and Platinum.
If you're healthy and rarely use care beyond an annual checkup, Bronze could be the best health insurance option. If you have recurring prescriptions or regular specialist visits, Silver or Gold is usually the better value. Compare total annual cost (premium + estimated out-of-pocket) for Bronze and Silver based on how many times you'll use care per year.
Step 3: Enroll
ACA Marketplace: Open enrollment runs November 1 through January 15. Starting a business, losing other coverage, or certain life events qualifies you for a special enrollment period within 60 days from the event date.
SHOP: Monthly enrollment cycle. You can enroll on the first of any month if you meet eligibility requirements.
For S-Corp owners: Once enrolled, set up payroll to include health insurance reimbursements in your W-2 wages. If you're running payroll through SurePayroll, add the monthly premium amount as reimbursement, and the service helps automate W-2 reporting.
Health Insurance and Payroll: Two Decisions That Work together
Choosing a plan is only part of the decision. How you pay for it and whether you can deduct it depends on your business structure and payroll setup.
S-Corp owners: Premiums must run through your W-2 to qualify for the deduction. SurePayroll helps automate this. Add your premium as a reimbursement, and SurePayroll can help track it through year-end. Your W-2 is correct, and your deduction is ready at tax time.
Offering coverage to employees? Payroll can help manage premium contributions and deductions. SurePayroll can help simplify this for small teams, so you can run payroll in minutes without manual tracking.
Need help choosing a plan? SurePayroll works with Paychex Insurance Agency* to give you access to licensed agents.
Learn More and Set Up Payroll
Compare Health Insurance Plans
*Health insurance sold and serviced by Paychex Insurance Agency, Inc., 225 Kenneth Drive, Rochester, NY 14623. CA License #0C28207.
This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up to date
