An 831(b) Plan, also known as a micro captive insurance company, is a small insurance company formed by a business owner to insure risks that are underinsured or uninsured within their operating company. The structure is designed to help businesses manage risk more effectively while leveraging favorable tax treatment under IRS Code §831(b). 

Why Businesses Use 831(b) Micro Captive Plans

Many companies face risks that traditional insurance either doesn’t cover or covers at prohibitively high costs. An 831(b) Plan allows the business to formally insure those risks using tax‑deferred dollars, creating both financial protection and long‑term planning benefits. 

Key Features of an 831(b) Micro Captive 

✔ Fund Underserved Risks With Tax-Deferred Dollars.

Businesses can allocate premiums to cover operational risks that may otherwise be uninsured or only partially insured. 

✔ Premium Limits 

  • 2026 premium limit: Up to $2.9 million per year. 
  • Premiums must align with real, legitimate business risks. They cannot be arbitrary. 

✔ Tax-Deductible Premiums 

Premium payments are tax-deferred to the parent/operating company, just like traditional insurance premiums. 

✔ Premiums Are Not Taxed as Income to the 831(b) Plan

Under §831(b), the 831(b) Plan is not taxed on premium income, because these premiums are considered at-risk reserves, not operating revenue. 

✔ Surplus Is Accumulated Tax-Deferred 

If claims are not made: 

  • Unused premiums stay inside the 831(b) Plan 
  • They accumulate as a surplus account, allowing long-term capital to grow tax‑deferred 

✔ Favorable Taxation on Distributions 

When surplus funds are eventually distributed from the micro captive, they are typically taxed at long-term capital gains (LTCG) rates, often significantly lower than ordinary income tax. 

Why 831(b) Plans Matter 

For the right type of business, an 831(b) Plan can: 

  • Strengthen risk management 
  • Build reserves for future uncertainties 
  • Improve financial stability 
  • Provide meaningful tax advantages 
  • Support succession, wealth transfer, or long-term planning