How health insurance benefits for the owner is deducted depends on the type of business organization set up. For self-employed persons, such as sole proprietors and partners in a partnership, health insurance is tax-deductible for the federal income tax, but not deductible for the self-employment tax.
Corporations generally can deduct the cost of health insurance coverage as an employee benefit, resulting in the benefit being free of income and payroll taxes.
Also of interest may be the health care tax credit, a relatively new tax incentive for small businesses to provide coverage for their employees.
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