Great news for your small business: offering health insurance provides tax benefits. | hioscar Blog | Oscar
Great news for your small business: offering health insurance provides tax benefits.
Much of the money you put into health insurance benefits can come right back to you as tax incentives.
Employee Health BenefitsTips for Small Businesses
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As a small business owner, much of the money you put into health insurance benefits can come right back to you in the form of tax incentives (opens in new tab).
Providing your team with health insurance carries a number of short and long-term pluses: Healthier employees are more productive – illness-related lost productivity costs employers $530 billion per year (opens in new tab). Employees that feel valued stay with you longer, which lowers turnover costs. A stronger team creates a stronger workplace. And even better for small businesses, the monetary cost of offering health benefits can also be offset with an assist from Uncle Sam.
But attracting (and retaining) the best talent means making your employees feel taken care of. Health insurance is one of the most valued benefits you can offer and the #1 requested benefit (opens in new tab) by employees.
By offering ways to potentially lower your taxes, the government encourages businesses like yours to provide qualified health plans (QHP). So yes, you can offer health insurance and not break your bottom line.
The tax incentives just waiting to save you and your small business money:
The contributions you make to employees’ small group health insurance benefits are tax-exempt, according to the Employer's Tax Guide to Fringe Benefits (opens in new tab) from the Internal Revenue Service (IRS). This means those costs are are declared for informational purposes only and are not part of any tax calculations for your business: they aren't subject to federal income tax withholding, social security, Medicare, federal unemployment (FUTA) tax, or Railroad Retirement Tax Act (RRTA) taxes, and aren't reported on Form W-2. Taking advantage of this incentive is particularly valuable — it can lower your tax payments, or in some cases even eliminate them completely.
Deductions
When you offer your employees a formal health insurance plan (opens in new tab) (or make formal contributions to their health care costs), the money you put toward their health care can usually be fully deducted as a business expense. Here are a few common health insurance-related deductions:
Contributions you make to your employees’ premiums are considered a business expense, so you can write off that cost. To be eligible for this deduction, you typically have to pay at least half of your employees’ premiums, though you aren’t required to make any payments toward dependent premiums.
Those employer contributions are also a tax benefit to employees. Here’s how it works: The dollars you commit toward employees’, their spouses’ and dependents’ premiums are an obvious financial plus for them, but are not considered ‘wages’ by the government, and therefore aren’t taxed the same way, for example on their paycheck. So employees are getting more for their money than if you had put those funds toward a raise instead.
Reimbursements made through approved Medical Reimbursement Plans such as Health Reimbursement Arrangements (HRAs). HRAs are tax-advantaged, employer-funded health care accounts, and offer tax benefits for both employees and employers. HRA reimbursements are tax-deductible to your business and Federal Insurance Contributions Act (FICA) / FUTA payroll taxes do not apply. For employees, these reimbursements are 100% tax-free and excluded from their gross income.
Contributions you make to employees’ Health Savings Accounts (HSAs). A type of pre-tax savings account, HSAs can be used when paired with a high-deductible health plan (HDHP). In general, contributions to an employee’s HSA are a deductible business expense for your company. Those contributions can also be excluded from an employee's income, and are not subject to Social Security, Medicare, or federal income taxes.
Have fewer than 25 full-time employees, and pay them an average salary of less than $53,000 annually.
Offer a group health insurance policy and pay at least 50% of employee premium costs (dependent premium payments not required).
Purchase coverage for yourself through the same plan as your employees. A couple of notes: You don’t have to offer coverage to part-time employees to get this credit, but you may need to buy the group policy through the Small Business Health Options Program (SHOP) Marketplace to qualify.
Other budget benefits of small business health insurance:
Lower payroll taxes.
When employees pay for health insurance with pre-tax dollars, their taxable income goes down. Lower taxable income for them means lower business payroll taxes for you.
Save on your own health insurance.
Another perk of offering insurance coverage to your employees is that you and your family can also participate in the plan. Compared with individual plans, group policies are usually more wide-ranging with more pre-deductible benefits—such as preventative care and primary doctor visit coverage, and low copays for routine care and drugs. These plans also typically have more options for the same price.
Ready to go? To learn more about our plans visit hioscar.com/business (opens in new tab), call our team directly at 1-855-672-2784, or talk to your broker about us.
