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Disability insurance payment through LLC

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  • Disability insurance payment through LLC

    Anyone have any concerns with having disability premiums paid as business expense making them tax deductible?

    It seems like a no-brainer unless One actually has to receive disability benefits since then they will be considered pretax.

  • #2
    Individual disability insurance (IDI) policy premiums are deductible for W-2 employees of every entity tax structure (Sole Prop, Partnerships, LLPs, LLCs, all Corporations: S C PC) provided there is an ERISA compliant qualified sick pay plan in place BUT owner-employees are only eligible for tax deductible premiums in C-corps.

    For example, you operate as a sole proprietor and you employ a W-2 employee; your premium is not deductible but your W-2 employee's premium is deductible provided your business has a qualified sick pay plan.

    Every entity structure can hire W-2 employees and their premiums can be deductible. BUT only C-corp owners can deduct their personal disability premium and then only as part of an eligible class of W-2 employees as defined in the qualified sick pay plan.

    In short, LLCs can not deduct IDI premiums for owner members.