Fringe Benefits Your S-Corp Can’t Match
With all the talk lately about Qualified Small Business Stock (QSBS) and the potential Section 1202 exclusion—up to $10 million or 10x your basis in capital gains tax-free—C-Corps are getting renewed attention. But even if you’re not planning a nine-figure exit, there’s another reason C-Corps deserve a second look: tax-free fringe benefits that S-Corps can’t touch.
Most ecommerce sellers default to S-Corps for the self-employment tax savings, and that’s often the right call. But C-Corps have a secret weapon for owner-operators who want to maximize tax-free compensation.
The Big Difference: Health Insurance & Medical Reimbursements
In an S-Corp, if you own more than 2% of the company, health insurance premiums paid by the company are included in your W-2 wages. You get an above-the-line deduction on your personal return, but you still pay payroll taxes on that amount.
In a C-Corp? The corporation deducts the premiums, and you receive the benefit completely tax-free—no income tax, no payroll tax, nothing. For a family health plan running $25,000+ annually, that’s real money.
Even better, C-Corps can set up Section 105 medical reimbursement plans to cover out-of-pocket expenses, deductibles, co-pays, dental work, vision, and more—all tax-free to the employee-shareholder and fully deductible to the corporation.
Full List of C-Corp Fringe Benefits
Here’s what C-Corp shareholder-employees can receive tax-free:
Health & Insurance
- Health, dental, and vision insurance premiums (100% deductible, tax-free to employee)
- Health Reimbursement Arrangements (HRAs)
- Section 105 medical reimbursement plans
- Long-term care insurance (age-based limits apply)
- Disability insurance
- Group term life insurance (up to $50,000 coverage)
Retirement
- 401(k) with employer matching
- Defined benefit pension plans
- Profit-sharing plans
- Cash balance plans
Education
- Educational assistance—up to $5,250/year tax-free (Section 127)
- Unlimited job-related education reimbursement (Section 132)
- Student loan repayment assistance—up to $5,250/year (through 2025)
Transportation
- Company vehicle for business use
- Parking benefits—up to $325/month (2025)
- Transit/vanpool—up to $325/month (2025)
Meals & Lodging
- Meals on premises for employer convenience
- Lodging on premises (if required as condition of employment)
- De minimis meals (coffee, snacks, occasional meals)
Working Condition & De Minimis Benefits
- Business subscriptions and publications
- Professional dues and memberships
- Cell phones for business use
- Tools and equipment
- Professional development and training
- Holiday parties and company picnics
- Occasional personal use of office equipment
- Holiday gifts (non-cash, nominal value)
Other Benefits
- Dependent care assistance—up to $5,000/year (Section 129)
- On-site childcare or athletic facilities
- Employee achievement awards—up to $1,600
- Adoption assistance—up to $16,810
- Qualified employee discounts
Is a C-Corp Right for You?
The double taxation issue is real, but for businesses that can zero out corporate income through salary and benefits, C-Corps can actually result in lower overall tax burden—especially for owner-operators who max out fringe benefits.
And if you’re building something you might sell down the road? Starting as a C-Corp now means you’re already on the clock for QSBS eligibility.
If your health insurance and medical expenses are significant, you’re looking to supercharge retirement contributions, or you have exit potential on the horizon, it might be time to revisit the C-Corp conversation.
Questions? Reach out—we’re happy to run the numbers for your specific situation.
