Many employers provide their workers with health insurance, so you may be wondering whether health insurance is deductible for small businesses. In general, there are a few takeaways to keep in mind:
- Small businesses can potentially deduct health insurance-related expenses from their federal business taxes.
- Providing health insurance can help attract and retain top talent in your industry.
- Ensure to meet the necessary conditions and consult with an accountant for clarification on tax deductions for small business health insurance expenses.
Like larger companies, small businesses are typically able to deduct some of their health insurance-related expenses from their federal business taxes. Expenses that might qualify for these deductions may include:
- Monthly premiums
- Contributions to an HSA
- Tax-advantaged dollars
Even if you can’t afford to enroll in a group health insurance plan, you may still be able to set aside tax-advantaged dollars to help employees buy coverage on their own. Each of these tax options features benefits for both your business and your team, so it is important to understand the details of each to ensure you are getting the most for your health insurance investment.
Let us take a closer look at the expenses that may qualify for tax deductions below.
Monthly premiums
If you are asking yourself, “are health insurance premiums tax deductible?”, the answer is usually yes. When you enroll in group health insurance, you will likely pay at least 50% of the monthly premiums for your employees. The amount of money you pay toward the premium is usually tax deductible for your company.
In addition, the money that employees contribute toward their own monthly premiums can usually be deducted from their payroll on a pre-tax basis. This means that you deduct the monthly premium cost from the paychecks of employees before federal and state taxes are calculated and deducted. As a result, employees may get the tax benefits of increased take-home pay and reduced taxable income.
Health Savings Account (HSA)
You may also reap some tax benefits if you offer a Health Savings Account (HSA) with your group plan. The contributions you and your employees make to these accounts are typically tax deductible up to annual limits, saving you money while you save for potential future health expenses.
The IRS will place an annual limit on contributions to your individual HSA, depending on:
- Your type of high-deductible health plan (HDHP)
- Your age
- The date you became eligible
- The date you cease to be eligible
As long as the money in your HSA is used to pay for qualified medical expenses, you generally will not need to pay taxes on it.
The IRS defines qualified medical expenses as expenses that would generally qualify for the medical and dental expenses deduction. Except for insulin, non-prescription medicines are not considered qualified medical expenses for HSA purposes.
Tax-advantaged dollars
If you’re a small business owner who can’t afford to sponsor a group health insurance plan, you can help your workers buy coverage and get tax breaks at the same time in many cases. Small business health insurance tax deductions can make health coverage more affordable by helping employees purchase their own individual or family health plans.
Under federal law, qualifying small businesses can now fund special health reimbursem*nt accounts for their employees to purchase individual or family health insurance. Within limits, the money deposited into the account is tax-deductible for qualifying small businesses.Some states have additional rules and restrictions.
Eligible small businesses with less than 50 employees can offer a qualified small employer health reimbursem*nt arrangement (QSEHRA) to their employees. A QSEHRA is not a group health plan, but it can help employees pay for the health coverage they need.
A QSEHRA provides for the payroll tax-free reimbursem*nt of employee medical expenses through a monthly allowance offered by the small business employer. The business then reimburses employees up to the amount of their allowance.
Financial Advantages of Offering Small Business Health Insurance
Now that you know whether health insurance is tax deductible for small businesses, we will explore other financialadvantages of offering small business health insurance.
Pre-tax savings
You and your employees may be eligible for pre-tax savings. For example, you may reduce the amount of money you have to pay in taxes by deducting your health insurance premiums from your taxable income.
Employee retention
Offering your employees health insurance can also increase your retention rate. After all, many employees want to work for an employer that provides healthcare benefits. In fact, 63% of workers surveyed byJustworks and Harris Pollsaid that their company’s health insurance options impact how likely they are to stay in their current role.
Lower healthcare costs
You can reduce your healthcare costs as well as the healthcare expenses of your employees by offering health insurance. This is because many health insurance companies provide discount rates on group plans.
As a result, you and your employees can enjoy lower healthcare costs and take advantage of preventive care benefits to catch potential medical problems before they become more serious.
Tax credits
You may also be eligible for tax credits because of the health insurance you offer your employees. You need to follow several steps if you are interested in claiming thistax credit.
How to Claim Healthcare Tax Credits
According to theInternal Revenue Service (IRS), there are several requirements you need to meet in order to claim healthcare credits on your small business taxes:
- You need to have fewer than 25 full-time employees
- The average annual wage of your full-time employees has to be less than $50,000
- You need to offer a qualifying health insurance plan through the Small Business Health Options Program (SHOP) Marketplace
You need to pay at least 50% of the health insurance premium per employee.
If you meet the conditions above, you qualify for the small business healthcare tax credit. Do not hesitate to reach out to a professional who can help with the process.
Find a group health insurance plan with eHealth
So, is health insurance tax deductible for small businesses? In general, the amount of money you put toward your employees’ health insurance plans is tax-deductible. You may also be eligible for tax credits in certain situations. It is best to speak with a tax professional to ensure you report your expenses accurately and receive the most deductions possible.
If you are looking for a group health insurance plan for your business, eHealth can help. Our licensed brokers can help you navigate a wide range of options in various states to ensure that you can find the coverage that fits the needs and budget of your company. You can enroll in a plan online, by phone, or through our group chat, and there are never any coverage fees. Contact eHealth today Comparegroup health insurance plansin your area to get started today.
