Disclosure: This guide is general information, not legal or tax advice. Ask a tax professional about your return.
Health insurance for small business owners works differently from health insurance for employees. Which plans you can buy depends on two things: how many people you employ and how your business is set up for tax.
This guide walks through the options by situation, how the premiums are taxed, and what changes when you hire your first employee.
What health insurance options does a small business owner have?
A small business owner has four main options: an individual plan on the Marketplace, an individual plan bought directly from a carrier, a small group plan, or a spouse's employer plan. Which ones are open depends on headcount and on whether the owner could join a subsidized employer plan.
| Your situation | Plans you can buy | Notes |
|---|---|---|
| No employees | Individual Marketplace or off-exchange plan | Premium tax credits depend on household income |
| At least one employee who is not an owner or spouse | Small group plan, or individual plan | Group coverage can start any month of the year |
| Spouse has an employer plan | Spouse's plan, or your own individual plan | You lose the premium deduction for months you could join a subsidized plan |
| Just left a job | COBRA, or an individual plan through a special enrollment period | See our special enrollment period guide |
Self-employed owners who want a deeper look at individual plans can read our guide to health insurance for self-employed people.
Can an owner with no employees buy a small business health plan?
No. HealthCare.gov says a business with no employees other than the owners and their spouses is not eligible for a Small Business Health Options Program (SHOP) plan. An owner in that spot buys coverage on the individual Marketplace instead.
HealthCare.gov also says a business generally needs at least one full-time employee who is not the owner, a spouse, a family member or another owner to use SHOP. Group plans sold outside SHOP follow similar headcount rules, and they vary by state and carrier, so ask before you apply.
What changes when a business owner hires a first employee?
Hiring a first employee who is not an owner or spouse can open the door to small group coverage. HealthCare.gov says there is no limited enrollment period for SHOP, so a small employer can enroll and start coverage in any month.
That timing matters. Individual plans follow open enrollment, which for 2027 coverage on HealthCare.gov runs November 1, 2026 to January 15, 2027, with a December 15 deadline for January 1 coverage (healthinsurance.org, 2026). A group plan can start when you are ready.
Small employers that pay part of employee premiums may also qualify for the Small Business Health Care Tax Credit. Our small business health care tax credit guide covers who qualifies.
How are health insurance premiums taxed for business owners?
Most business owners can deduct health insurance premiums on their personal tax return, but the rules depend on the entity type. The deduction sits under Internal Revenue Code Section 162(l) and is reported with Form 7206.
| Entity type | How premiums are treated | Key rule |
|---|---|---|
| Sole proprietor or single-member LLC | Deducted on Schedule 1 of Form 1040 | Cannot exceed net profit from the business |
| Partner or LLC member taxed as a partnership | Deducted on the owner's return | Cannot exceed net self-employment earnings |
| S corporation owner with more than 2% of shares | Business reports premiums as wages in Box 1 of Form W-2, owner then deducts them | IRS Notice 2008-1 |
| C corporation owner who is also an employee | Treated like any other employee under the group plan | Owner is an employee of the corporation |
Two limits apply to the self-employed deduction. You cannot take it for any month you were eligible to join an employer plan that is subsidized, including your spouse's, and the deduction cannot exceed the net earnings from the business that sponsors the plan (IRS Instructions for Form 7206, 2025).
S corporation owners also face a Section 125 rule. A more-than-2% shareholder cannot join the company's cafeteria plan, according to IRS Publication 15-B. Our S corporation Section 125 guide explains the rule and the family attribution trap.
How do premium tax credits affect a business owner's plan costs?
Premium tax credits lower Marketplace premiums for owners whose income falls inside the eligible range. The enhanced credits expired at the end of 2025 (KFF, 2026), so people above 400% of the federal poverty level no longer qualify and pay the full premium.
Owners have a planning problem here, because business income moves from year to year. A strong year can push household income over the line and cost you the credit. Use your best estimate of net profit when you apply, and update the Marketplace if your income changes during the year.
Our 2027 premium increase by state guide shows early rate filings if you are budgeting for next year.
Who handles benefits for my employees once I hire?
Once you have employees, someone has to run the benefits side: the plan paperwork, payroll deductions and annual testing. Many owners use a broker for the insurance plan and a plan administrator for the tax side.
Summit Health Benefits is a Section 125 plan administrator. A Section 125 cafeteria plan lets employees pay health premiums with pre-tax pay, which cuts payroll taxes for both sides. Summit provides the written plan document, the summary plan description and support for nondiscrimination testing, and its plan documents are reviewed by ERISA attorneys. The owner still cannot join the plan if the business is a sole proprietorship, a partnership or an S corporation with a more-than-2% owner, but employees can.
Summit's fee is $35 per enrolled employee per month, paid out of the employer FICA savings the plan creates. The employer still nets about $56 to $101 per enrolled employee per month. FICA is the 7.65% employer payroll tax. Our FICA savings guide shows the math, and the Section 125 calculator estimates it for your headcount.
If you already offer a group plan, our small business health insurance guide compares carriers, and our group health insurance guide covers plan types.
Talk Through Your Coverage Options With a Licensed Professional
A licensed professional will look at your entity type, headcount and income and show you which plans fit before your enrollment window closes.
Frequently Asked Questions
What is the best health insurance for a small business owner?
Can I deduct health insurance premiums as a small business owner?
Can a business with no employees get group health insurance?
Can an S corporation owner get health insurance through the company?
When can a small business owner sign up for health insurance?
Can a sole proprietor join a Section 125 cafeteria plan?
What happens to my premium tax credit if my business income rises?
Sources: HealthCare.gov, Small Business Health Options Program (SHOP) eligibility and enrollment pages (2026); healthinsurance.org, 2027 open enrollment dates (2026); KFF, Marketplace premium and enhanced tax credit analysis (2026); IRS Instructions for Form 7206, Self-Employed Health Insurance Deduction (2025); IRS Notice 2008-1, S corporation shareholder health insurance reporting; IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits (2026); Internal Revenue Code Section 162(l); IRS Publication 15, Employer's Tax Guide (2026, employer FICA rate of 7.65%).