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.
What It Can Do for Your Business
The real value of a SIMRP depends on your business structure, payroll and the medical expenses the plan reimburses, so it's different for every company. Christine reviews your actual numbers with you, and with your CPA if you'd like, to show whether a SIMRP is a fit and what it could realistically do for you.
Tax results vary by business. 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 |
A Self-Insured Medical Reimbursement Plan (SIMRP) is an IRS-recognized employer benefit strategy that allows businesses to reimburse employees for qualified medical expenses using pre-tax business dollars. Unlike traditional group insurance, a SIMRP converts what would otherwise be after-tax personal health expenses into pre-tax business deductions, which can reduce both income taxes and payroll taxes for businesses that qualify. It's designed for businesses with W-2 payroll and works alongside the health insurance they already have.
To qualify for a SIMRP, a business generally needs: (1) A legal business entity (LLC, S-Corp, C-Corp, or partnership); (2) At least one W-2 employee — this can include the business owner if structured as an S-Corp or C-Corp; (3) A qualifying medical reimbursement plan document; (4) Compliance with IRS non-discrimination rules. Sole proprietors without W-2 employees typically do not qualify for SIMRP. S-Corp owners who pay themselves a W-2 salary are often the strongest candidates. A Health Insurance Strategist can evaluate your specific business structure to determine eligibility.
It depends on the business: its structure, its W-2 payroll and the qualified medical expenses the plan reimburses. The value can come from two places: (1) reimbursements are generally deductible business expenses, and (2) when the plan is set up correctly, reimbursements aren't treated as taxable wages, which can lower payroll taxes for both the employer and employee. Rather than quote general ranges, Christine reviews your actual situation (with your CPA if you like) to show whether a SIMRP makes sense for you.
A SIMRP and an HRA (Health Reimbursement Arrangement) are related but distinct strategies. An HRA is a broader category of employer-funded accounts that reimburse employees for qualified medical expenses. A SIMRP is a specific type of self-insured medical reimbursement plan that operates under IRC Section 105 and can reimburse a wider range of medical expenses. Key differences: SIMRP can reimburse expenses beyond just insurance premiums (including out-of-pocket medical costs); SIMRP can generate payroll tax savings in addition to income tax savings; SIMRP requires a formal plan document and compliance with non-discrimination rules. Both strategies are powerful tools in a comprehensive health benefit strategy.
A SIMRP works as follows: (1) The business establishes a formal SIMRP plan document with IRS-compliant terms; (2) The employer sets reimbursement limits and eligible expense categories; (3) Employees (including owner-employees) incur qualified medical expenses; (4) Employees submit documentation of expenses to the plan administrator; (5) The employer reimburses the employee from business funds; (6) The reimbursement is deducted as a business expense, reducing the employer's taxable income; (7) The reimbursement is excluded from the employee's taxable wages, reducing payroll taxes for both employer and employee. The net result is that personal health expenses are converted into pre-tax business deductions.
Yes. Self-Insured Medical Reimbursement Plans are explicitly recognized under IRC Section 105 and have been a legitimate tax strategy for decades. The IRS has specific rules governing SIMRP design, including non-discrimination requirements (the plan must not discriminate in favor of highly compensated employees), documentation requirements, and eligible expense definitions. When properly structured and administered, a SIMRP is fully compliant with IRS regulations. Christine Kieffer works with qualified tax and legal professionals to ensure all SIMRP implementations are properly documented and compliant.