The IRS has raised the Section 831(b) annual premium cap for qualifying micro-captive insurance companies to $2.9 million, effective for taxable years beginning in 2026. This inflation-indexed increase, up from $2.85 million in 2025, helps maintain the relevance and utility of 831(b) captives for small and mid-sized businesses focused on risk management and capital efficiency.
Understanding the New $2.9 Million Limit
For the 2026 tax year, eligible captives can take advantage of the higher $2.9 million limit, allowing increased premium retention under this favorable tax election. The IRS continues to apply annual inflation adjustments in $50,000 increments to ensure the provision keeps pace with economic changes, providing stability for sophisticated captive owners committed to regulatory compliance and risk discipline.
Recent 2025 Tax Court Rulings
The IRS’s decision to boost the 831(b) threshold is set against a backdrop of aggressive enforcement. In 2025, Tax Court decisions repeatedly favored the IRS, highlighting the requirement for legitimate risk transfer and real underwriting. These cases clarified that captives lacking realistic premiums or meaningful risk pools will not stand up to IRS scrutiny. Such outcomes underline the need for properly structured, actuarially sound captives—an approach consistently recommended by Captives Insure.
Captives Insure’s Viewpoint
Captives Insure remains committed to the highest standards of compliance and transparency. The firm advocates for the formation and operation of 831(b) captives only where there is clear risk, legitimate underwriting, and full regulatory transparency, ensuring that every captive is defensible under IRS review. This disciplined approach is essential in today’s environment, as illustrated in Captives Insure’s own guidance on “Captive Tax” and broader analyses of industry and regulatory developments.
Related Captives.Insure Resources
As the 831(b) cap rises, proactive planning and meticulous compliance are essential for maximizing the benefits of captive insurance and ensuring long-term sustainability and compliance.
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