S-Corp Health Insurance and Medical Reimbursement Moves Before December 31

The Big Picture

If you run a small business with fewer than 50 employees, the IRS doesn’t require a medical plan - but you should still have one. Setting up the right plan before December 31 ensures you capture 2025 deductions and stay compliant.

Below are five moves to review before year-end.

1. Reimburse Your Section 105 HRA Expenses

If you operate as a sole proprietor or C corporation and your spouse is your only employee, you can use a Section 105 Health Reimbursement Arrangement (HRA) to deduct family medical expenses.
Make sure any 2025 reimbursements are completed and documented before midnight on December 31 so they count this year. Going forward, switch to a monthly reimbursement schedule for 2026 to stay consistent.

2. Review QSEHRA Limits and Notice Deadlines

For small employers with fewer than 50 employees, a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) can reimburse individual insurance premiums and out-of-pocket costs tax-free.
For 2025, the limits are:
• $6,350 for self-only coverage
• $12,800 for family coverage

If you plan to start or renew your QSEHRA on January 1, written notice must be provided to employees at least 90 days prior. The penalty for missing the notice deadline is $50 per employee, small compared to missing the entire deduction.

QSEHRAs remain one of the most flexible, cost-effective ways for small businesses to provide health benefits without formal group coverage.

3. Consider an Individual Coverage HRA (ICHRA)

The Individual Coverage HRA allows businesses of any size to reimburse employees for individual health insurance premiums and qualified medical expenses. Employees must be enrolled in individual health plans (Marketplace or private).
An ICHRA can replace or supplement traditional group coverage, giving owners and employees more flexibility.

4. Confirm S-Corp Health Insurance Reporting

If you are an S-corp owner-employee, confirm that:

  1. The S-corp has paid or reimbursed your 2025 health insurance premiums, and

  2. The cost is included on your W-2 before year-end.

Without these two steps, your premiums won’t qualify for the above-the-line deduction on your individual return. They’ll fall under itemized medical deductions, where most owners get no benefit.

Finalize reimbursements and ensure the amount appears on your W-2 before December 31.

5. Claim the Small Business Health Care Tax Credit

Suppose you pay at least 50 percent of your employees’ single coverage premiums through a group plan. In that case, you may qualify for a 50 percent federal tax credit for 2025 and 2026 (limited to two consecutive years).
To earn full credit:
• You must have 10 or fewer full-time equivalent employees, and
• Their average annual wages must be under $25,000.

If you missed claiming this credit in a prior year, you can file an amended return to recover it. For new plans, consider whether to start coverage this year or next to maximize your full two-year window.

Key Year-End Takeaways

• Reimburse 2025 medical expenses under Section 105 before December 31.
• File QSEHRA notices or establish plans now for 2026.
• Evaluate ICHRA options if you want more flexibility.
• Run S-corp health insurance through payroll before year-end.
• Claim the 50 percent health insurance tax credit where eligible.

Even small changes, like reimbursing on time or updating payroll entries, can protect thousands in deductions.

Schedule a quick review with Brothers Tax to confirm your 2025 health insurance reimbursements and deductions are properly documented before year-end.