The Self-Insured Medical Reimbursement Plan is one of the most powerful — and least understood — tax strategies available to business owners. Here is everything you need to know.
Definition
A Self-Insured Medical Reimbursement Plan (SIMRP) is an IRS-recognized employer benefit strategy under IRC Section 105 that allows businesses to reimburse employees for qualified medical expenses using pre-tax business dollars — converting personal health expenses into tax-deductible business deductions.
SIMRP is not a new strategy. It has been part of the IRS tax code for decades. But it is rarely discussed by traditional insurance brokers because it requires a deeper understanding of tax law, business structure, and benefit design than most brokers possess. It is also not a product that generates a commission — it is a strategy that requires expertise to implement correctly.
Christine Kieffer at Kieffer Insurance Group calls this strategy "Turn Payroll Into Profits" because that is precisely what it does: it takes payroll dollars that would otherwise generate taxable income and payroll taxes, and converts them into pre-tax business deductions that reduce your tax burden on multiple levels simultaneously.
Medical reimbursements made through a SIMRP are deductible business expenses. This reduces your business's taxable income, lowering your federal and state income tax liability at your marginal rate.
SIMRP reimbursements reduce the payroll tax base, saving both the employer's and employee's share of FICA taxes (Social Security + Medicare). This is a tax savings layer that most strategies do not provide.
Estimated Annual Savings by Business Size
| Annual W-2 Payroll | Estimated Annual Savings |
|---|---|
| $50,000 | $3,000 – $8,000 |
| $100,000 | $6,000 – $15,000 |
| $250,000 | $15,000 – $40,000 |
| $500,000 | $30,000 – $75,000 |
| $1,000,000+ | $60,000 – $345,000+ |
Estimates based on combined income and payroll tax savings. Actual savings vary based on tax bracket, state, and plan design. Consult a qualified tax professional.
| Business Structure | SIMRP Eligible? | Notes |
|---|---|---|
| S-Corp with W-2 payroll | Yes — Ideal | Owner-employees on W-2 can participate; strongest SIMRP candidates |
| C-Corp with employees | Yes | Full eligibility; owner-employees can participate |
| LLC taxed as S-Corp | Yes | Same rules as S-Corp apply |
| Partnership with W-2 employees | Yes (employees only) | Partners typically cannot participate; W-2 employees can |
| Sole Proprietor (no W-2) | Generally No | No W-2 payroll means no SIMRP; consider other strategies |
| LLC (sole member, no W-2) | Generally No | Must have W-2 payroll to qualify |