Friday, June 15, 2007

Married Sole Proprietors Can Deduct Medical Expense Reimbursements Paid to Their Employee - Spouse

Sole proprietors can employ their spouse and establish a deductible medical reimbursement plan for the employee (i.e. their spouse and their family, including the sole proprietor).

The plan can reimburse insurance premiums and all out of pocket medical expenses not covered by the insurance policy. The amount is deductible from their sole proprietor’s earnings, reducing both the income tax and the self-employment tax arising from the earnings. It is also not taxable income to the spouse…such a deal!

The “catch is that the program must cover all employees or the benefits become taxable to the recipient, so it best fits those sole proprietors that only employ their spouse and children. It also requires a written agreement be in place before a medical reimbursement plan can be implemented.

The restrictions may make it not practical for a lot of sole proprietors but for those it fits, it could be a big benefit.

This article was written by Dick Ginnaty, CPA (if there is any area in accounting or tax that you think needs to be addressed in this newsletter please e-mail Dick at and if it is of general interest, he will address it in future articles).