Offering health insurance to employees is important for small businesses. With the continually increasing cost of providing group insurance coverage, you may wonder if providing health benefits will become entirely unsustainable in the future. This may be the case if you’re operating on a tight budget or have fewer employees and other resources, hindering you from meeting the requirements for group health plans.
But the great news is that you can receive some tax benefits for your investment. As a small business owner, you can write off some of your group’s health insurance-related costs from your federal business tax. But how do health insurance tax breaks work?
This article will discuss the tax benefits you can get as a small business owner and how small business insurance tax deductions work.
The Type of Health Plans that Are Tax-deductible for Small Businesses
Tax relief is a deduction that lowers your company’s liability by reducing your overall taxable income. Some of your annual expenses, including health insurance premiums, may be deducted from your gross income to determine the payable tax.
To be eligible for a small business tax deduction, the Internal Revenue Service (IRS) requires that a plan falls under three major categories: medical insurance, long-term care insurance, or dental insurance.
Who Qualifies for a Self-employment Health Insurance Deduction?
Before applying for tax relief, you need to check if you and your business qualify for health insurance tax deduction. According to Internal Revenue Service, you are self-employed if:
- You meet the requirements of being self-employed. That is, you conduct business as a sole proprietor or are a member of a partnership business.
- You don’t qualify for an employer-sponsored health insurance plan
- You can present annual net profit
How Does Self-employed Health Insurance Tax Deduction Work?
Like large companies, small business entities can reduce a certain amount of their health insurance costs from the federal business taxes. The most common expenses that might be eligible for tax breaks include:
Small businesses enrolled in group health insurance plans often pay about 50 percent of monthly premiums on behalf of their staff. Whatever amount you pay as premiums is often tax-deductible for your business. On the other hand, the amount your staff pays for their monthly premiums can be subtracted from their paycheck as pre-tax.
Using this approach means you get to deduct your premium expenses from your employees’ payroll even before the federal taxes are deducted. This creates a solution where everyone benefits when you reduce your taxable income and employees receive tax income, increasing their pay.
Contributions to a H.S.A.
You may also get some tax benefits if you provide Health Savings Account – H.S.A along with your health plan. The contributions you make to H.S.A, together with your employees’, are essentially tax-deductible, saving you a significant amount of money.
In some cases, the IRS may restrict your annual contributions towards H.S.A based on your age, your high-deductible health plan, the date you qualified, and the expiry date of your health plan.
Small business owners who can’t afford to obtain group health insurance can assist their employees in purchasing health coverage to receive tax relief. Furthermore, Federal law allows qualifying self-employed individuals to fund exclusive health reimbursement accounts for their workers to buy individual or family health insurance. In some instances, the money paid to these special accounts is tax-deductible, but only for qualifying businesses.
Find a Health Insurance Plan that Works for Your Business at Design Health
If you’re searching for a health plan to suit the needs of your small business and employees, Design Health can help. Our reputable insurance agents will help you select the right coverage that fits your budget and preferences. Contact us today at (720) 330-2283 to discuss your insurance needs.