Tax Benefits of Group Health Insurance Plans
If you are a small business owner, continuously looking for tax cuts and benefits should be on the top of your list. There are only so many deductions that you can take in each category, so it benefits you to know all of the categories and their allowed maximums. Code 162 from the IRS states that all deductions must qualify as either “ordinary” or “necessary.” Since healthcare is mandatory for all small business employing over two people, this is a necessary expense.
Many entrepreneurs are unaware that their group health plans can offer significant tax deductions on premiums and health savings accounts.
Premiums
By law in California, you are allowed to write off 100% of the premiums you are paying out for your group health plan. Even with a smaller staff, this can result in a significant tax deduction when it is time to put pen to paper. One important thing to make sure of is to have all documentation including receipts for payments as well as a copy of your current policy to prove that you are paying.
If you have any questions with tax deductions, make sure to take the information into your accountant so they can review them. Your accountant might know about some additional tax credits for paying employee’s premiums or other health care needs.
Health Savings Accounts
In California, health savings accounts are an amazing way for small businesses to save when tax time rolls around; since contributions are made pre-tax, they are not subject to any federal or state tax laws, providing added benefits for your employees as well.
In order to take advantage of this tax savings, you must have a HSA eligible plan, meaning that the deductible must be greater than $1,000 per year and may not offer a co-pay. Some tax benefits might be possible if you can show that you are actively contributing to employees’ health savings accounts.
Small business owners who keep up with the tax laws on California health insurance are the ones who save the most money when April 15 drifts into view. Although taxes are necessary, they don’t have to break the bank each year if you know what to look for. If you don’t feel like wading through pages of IRS data it might be a good idea to employee a tax professional, which can also help explain some of the benefits to your employees.