Can a C Corp Deduct Employee Health Premiums Without an HRA?

Someone on Reddit asked whether a C corporation can deduct employee health insurance premiums as a business expense, and whether a Health Reimbursement Arrangement (HRA) is required. They had seen conflicting guidance: IRS Publication 15-B suggests the deduction is allowed like other business expenses, while some practitioners say it must be part of an HRA or similar plan. C corporations can generally deduct employee health insurance premiums as a business expense without using an HRA, including for small employers with fewer than 50 employees. An HRA is optional and can offer additional tax benefits and flexibility.

Bottom line: Yes. C corporations can generally deduct employee health insurance premiums as a business expense without the necessity of using an HRA. This applies even for small employers with fewer than 50 employees. An HRA is not required for the deduction; however, an HRA can provide additional tax benefits (such as tax-free reimbursements for out-of-pocket medical expenses) and may be structured for greater flexibility in health benefits management. For entity-specific advice, consult a tax professional.

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Question from Reddit

Consensus on C corp deducting employee health premiums

This might be a simple issue for people working with it every day, but I can't seem to figure out the final word on a C corp paying for employee health insurance premiums.

I know it's deductible as a business expense for a C corp, but there's conflicting information everywhere I look on whether in 2025 it can just be a deduction, outside of some sort of HRA. Reading the IRS pub 15b on fringe benefits, the deduction for employee's health insurance seems allowed just like any other deduction, but lots of lawyers and CPAs who discuss it say that the deduction can only be taken as part of an HRA or similar structured plan. In other words, the plans that an individual might have on their own, from the marketplace or wherever, are not acceptable to the IRS as a deductible expense to the employer. If this is so, I don't know why it isn't mentioned in Pub. 15b.

I'm referring to small employers with <50 employees, or even a single employee, if that makes a difference.

Thanks for any help.

Source: Reddit

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Analysis

The inquiry pertains to whether C Corporations can deduct employee health insurance premiums, and if there are stipulations requiring these deductions to be part of a Health Reimbursement Arrangement (HRA).

It is important to clarify the distinction between:

• Deducting premiums directly as a business expense, and
• Doing so through an HRA or similar structured plan,

especially for small businesses or single-employee setups.

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Answer

C Corporations can generally deduct employee health insurance premiums as a business expense without the necessity of using an HRA. This applies even for small employers with fewer than 50 employees.

Do you need an HRA to deduct premiums?

No. The deduction for employee health insurance premiums can be claimed as a regular business expense on the C corporation’s return. Publication 15-B treats health insurance as a fringe benefit whose cost can be deductible by the employer; an HRA is not required for that deduction.

When might you use an HRA?

An HRA can provide additional tax benefits and may be structured in a way that allows for greater flexibility in health benefits management. For example, an HRA can allow tax-free reimbursements for out-of-pocket medical expenses incurred by employees, which may be beneficial for both employers and employees.

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Applicable Sections

Federal / IRS

• Publication 15-B outlines rules for tax treatment of fringe benefits, including health insurance. Deductions for health insurance premiums can typically be claimed by C Corporations (Publication 15-B).

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Practical Notes

• When health insurance premiums are provided as direct benefits to employees, they can be deducted as regular business expenses by the C Corporation.
• Utilizing HRAs can offer tax advantages, such as allowing for tax-free reimbursements for out-of-pocket medical expenses incurred by employees, which may be beneficial for both employers and employees.
• File Form 1120 to report C Corporation income, including deductions for employee benefits like health insurance.

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Limitations

This answer does not address:

• Specific state considerations, or
• Potential nuances of certain employee benefit plans.

For guidance tailored to your situation, consult a tax professional. Margen can help you explore options for your entity and benefits.