Can Health Insurance Be a Business Expense?

For self-employed individuals, the cost of health insurance is treated as an ordinary expense. Whether you obtain the coverage under your name or business, you can deduct the premiums paid for you, a dependent child, spouse, or an underage non-dependent child. If you are a business owner providing health benefits, health insurance can be a business expense.

However, in most cases, health insurance is a shared expense between employers and employees. This occurs when your employees are in a health insurance plan that requires their employers to make a contribution.

Features that Make health Insurance a Worth While Expense

Deductions

When you provide a health insurance plan for your employees and contribute  to their health care needs, the money deposited towards the plans premium  is typically deducted as a business expense.

Contributions towards your employee’s health care insurance are regarded as a business cost, meaning that you can write off that expense. To be eligible for this deduction, you will have to pay 50% of the premiums for your employees, you don’t have to contribute towards  dependents premium.

The contribution you make on your employees’ behalf can be a tax benefit to the participants . These contributions are a financial plus to the employees but are not regarded as salaries or wages by the government, which means they are not taxed the same way.

The reimbursement made through Health Reimbursement Arrangements (HRAs) is also  considered a healthcare-related deduction. Health Reimbursement arrangements are tax-advantaged health care accounts funded by employers, offering tax benefits to both employers and employees. HRAs are tax-deductible to the Federal Insurance Contribution Act( FICA) and your business. The reimbursed amount for employees is 100% tax-free and is not included in their gross income.

Health Savings Accounts HSA’s  also allow employers to enjoy some deductions.  Employees who participate in a  a high-deductible health plan are generally eligible to contribute to a HSA.  Employees’ contributions to the HSA are a deductible business expense for your enterprise. The contribution is also excluded from your employee’s income and is not subject to federal income, Medicare, and Social Security taxes.

Low Payroll Taxes

When your employees pay for their health insurance costs using pre-tax dollars, they will have a lower taxable income. A lower taxable income for your employees means you will pay fewer payroll taxes.

Tax Credits

Besides the deductions, you may also obtain a small business health care tax credit. The credit is available for employers that:

  • Have fewer than 25 full-time employees who have an average salary of not more than $53,000 per year.
  • Provide group health insurance coverage and pay at least half of the employee’s premium cost.
  • Use the same plan to purchase coverage for themselves and their eligible dependents.. You do not have to offer coverage to your part-time employees to be eligible for the tax credit. However, you might have to purchase the group policy using the Small Business Health Options Program Marketplace

Contact Design Health to Learn More

The experts at Design Health can assist you with  understanding the complex issues associated with health insurance and tax benefits.   Contact our Design Health insurance advisors by filling out our online contact form to learn more about how we can help you pick a health insurance plan that meets your business needs. Can we have them call us instead of filling out a form?

Scroll to Top