Health insurance
Employer payments for employee group health insurance premiums are fully deductible on Schedule C line 14 ("Employee benefit programs"). The premiums are excluded from the employee's wages (a powerful pretax benefit). Owner premiums use a separate Schedule 1 deduction (the self-employed health insurance deduction).
Retirement plan contributions
Employer matching and profit-sharing contributions to a 401(k), SIMPLE IRA, SEP IRA, or other plan covering employees are deductible. These expenses go on Schedule C line 19 ("Pension and profit-sharing plans") rather than line 14.
Educational assistance
Employer payments up to $5,250 per employee per year for educational assistance programs are deductible by the employer and excluded from the employee's income under Section 127. Plan documents and non-discrimination rules apply.
Dependent care assistance
Employer-provided dependent care assistance (often through a dependent care FSA) is deductible by the employer and excluded from the employee's wages up to $5,000 per year.
Group-term life insurance
Premiums for group-term life insurance up to $50,000 of coverage per employee are deductible by the employer and excluded from the employee's wages. Coverage above $50,000 produces imputed income to the employee at IRS Table I rates.
Worked example with numbers
Consider a sole prop with $100,000 in gross receipts and $30,000 in legitimate Schedule C deductions, including this category. Each additional $1,000 of qualifying expense reduces Schedule C net profit by $1,000, which reduces self-employment tax by approximately $1,000 × 92.35% × 15.3% ≈ $141, and reduces income tax by $1,000 × marginal rate. At a 22% federal marginal rate, the combined federal tax savings on each additional $1,000 of legitimate deduction is roughly $361, and state savings sit on top of that. The math is why disciplined categorization throughout the year pays for itself.
Common mistakes that disallow the deduction
The recurring ways this deduction gets disallowed in examination cluster in four categories: (1) personal-use expenses bundled with business (the deduction is disallowed entirely or apportioned downward); (2) inadequate substantiation (no receipt, no invoice, no business-purpose note); (3) the wrong line on Schedule C (not fatal, but it weakens audit defense); and (4) double-counting with another line (for example, deducting an expense on Schedule C and also on Form 8829, or as a personal itemized deduction on Schedule A). The fix in every case is contemporaneous bookkeeping and a clean chart of accounts.