Tax Advantages of Employer Paid Health Insurance
Don’t Overlook Big Tax Savings For Your Business When Considering Employer Paid Health Insurance
Arizona small business owners who may be hesitant about providing employer-paid health insurance for their workforce because of cost often overlook the significant corporate tax advantages of providing employees with such coverage.
The reality is that Arizona businesses miss the big picture if they only consider premiums and administrative expenses when deciding whether to offer group health insurance to eligible employees. That picture is full of tax advantages, deductions, credits, and other savings. In addition, insuring your workforce also comes with many intangible benefits, such as fewer sick days, lower employee turnover, and better employee recruitment and retention.
As with anything tax-related decision for your Arizona business, you should always speak with a tax professional about the specific implications to your business of enrolling your employees in a group health plan.
But as you decide whether to offer employer-paid health insurance, here are some tax advantages your company is likely to realize by providing group health insurance.
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Your Health Insurance Expenses Are 100% Tax-Deductible
Arizona businesses with less than 50 full-time employees have no obligation to offer employer-paid health insurance to their employees. But for companies that do offer coverage, whether or not the law requires them to do so, all health insurance-related expenses they pay are 100 percent tax-deductible. Under federal and state law, tax authorities treat such costs as ordinary business expenses.
Additionally, employers can usually have employees pay part of the premiums with pre-tax dollars by deducting the premium costs from their paycheck before determining state and federal tax obligations. Doing so lowers the amount of an employee’s taxable income and increases the amount of their take-home pay every pay period. The technical health insurance term for this arrangement is “win-win.”
Affordable Care Act Small Business Tax Credits
Under the Affordable Care Act (ACA), many small businesses can earn tax credits of up to half of their premium expenses during any two-year period that they offer employer-paid health insurance. Under IRS rules, a company can generally claim the small business health care tax credit if the business meets these requirements:
- Has fewer than 25 full-time equivalent employees;
- Pays average wages of less than $50,000 a year per full-time equivalent employee (indexed every year for inflation);
- Offers a qualified health plan to employees through the Small Business Health Options Program Marketplace (SHOP) or if the business qualifies for a limited exception to this requirement;
- Cover at least 50 percent of the cost of employee-only health care coverage for each employee.
Arizona Health Insurance Premium Tax Credit
In addition to the federal small business tax credit, Arizona also offers state tax credits to small businesses that provide employer-paid health insurance to their employees if they did not offer such coverage before.
The Arizona Health Insurance Premium Tax Credit is actually a credit that a health insurance company receives for enrolling a new, qualified Arizona small business in a group health plan. But the insurance company passes the credit on to the insured small business in the form of reduced premiums. The credit is calculated based on $1,000 per year for single coverage and $3,000 per year for family coverage or 50 percent of the annual premium, whichever is less.
For an Arizona small business to qualify for this tax credit, it must:
- Have existed in Arizona for at least one year;
- Not have provided employer-paid health insurance for at least six straight months before applying for the tax credit, and
- Have at least two employees but no more than 25 during the most recent calendar year, including full-time, part-time, and other employees who are ineligible for benefits.
Speak With Southwest Health Insurance Experts To Learn More About Employer Paid Health Insurance Tax Advantages.
After speaking with a tax professional, the best way to ensure that your business receives the tax advantages of providing your employees with employer-paid health insurance is to discuss your options with an Arizona group health insurance broker specializing in small business needs. Southwest Health Insurance Experts is an experienced Arizona small business and individual health insurance broker with over 30 years of experience servicing the health insurance needs of Arizona businesses. We are committed to answering your questions, addressing your concerns, and providing solutions that can keep you and your workforce safe and healthy without sacrificing your bottom line.
Contact us to schedule a free consultation about your small business or individual health insurance needs.