SIMRP — Self-Insured Medical Reimbursement Plan
Turn Payroll Into Profits: The Tax Strategy Most Business Owners Don't Know About
What is a SIMRP?
A Self-Insured Medical Reimbursement Plan (SIMRP) is an IRS-recognized employer benefit strategy that allows a business to reimburse employees — including owner-employees — for qualified medical expenses using pre-tax business dollars.
Unlike traditional health insurance where the employer pays premiums, a SIMRP allows the business to reimburse actual medical costs incurred by employees, creating a direct tax deduction for the business while providing tax-free income to the employee.
How SIMRP Reduces Taxes
When a business implements a SIMRP correctly, the medical reimbursements are: - Deductible as a business expense (reducing taxable business income) - Exempt from payroll taxes (FICA) for both employer and employee - Tax-free income to the employee receiving the reimbursement
This triple tax benefit makes SIMRP one of the most powerful tax reduction strategies available to small and mid-sized businesses, particularly those with W-2 employees or owner-employees.
Who Qualifies for SIMRP?
SIMRP strategies are most effective for: - S-Corporations and C-Corporations with W-2 employees - Businesses with owner-employees who have significant medical expenses - Companies looking to provide competitive health benefits without traditional group insurance costs - Businesses with 1 to 50 employees seeking tax-efficient benefit strategies
SIMRP is not appropriate for sole proprietors without employees or single-member LLCs taxed as sole proprietorships.
SIMRP vs. Traditional Group Insurance
Traditional group health insurance requires the employer to pay fixed monthly premiums regardless of whether employees use their benefits. A SIMRP reimburses only actual expenses incurred, which can result in significant cost savings for businesses with healthy employees.
Additionally, SIMRP reimbursements are exempt from payroll taxes, while traditional employer health insurance premium contributions, though deductible, are still subject to certain payroll tax rules depending on business structure.