Don’t Overlook Big Tax Savings When Looking at Group Health Insurance Tax Benefits for Your Workforce
Arizona small business owners may be hesitant about providing group healthcare to their employees because of cost. Unfortunately, these company owners often overlook the significant group health insurance tax benefits that come along with such coverage.
In reality, when businesses only consider premiums and administrative expenses when debating whether to provide health coverage, they miss the big picture. That picture not only contains tax deductions, credits, and other savings, but it also includes the many intangible benefits – such as fewer sick days and better employee recruitment and retention – that come from insuring your workforce.
As with anything tax-related, you should always consult with an experienced tax professional in Arizona about the specific implications to your business with enrolling your employees in a group health plan.
Here are some group health insurance tax benefits your company likely will obtain by covering your workers.
Group Health Insurance Tax Benefits: Health Insurance Costs are 100% Tax-Deductible
Arizona Companies with fewer than 50 full-time employees are under no obligation to offer their employees health insurance coverage. But if you choose to do so, all health insurance-related expenses that your company pays are 100 percent tax-deductible as ordinary business expenses under both federal and state law. This is the case no matter what type of entity your company is, whether an S-corp, C-corp, LLC, or partnership.
Additionally, you can usually have employees pay a portion of the premiums with pre-tax dollars. You do so by simply deducting the premium costs from their paycheck before calculating state and federal tax obligations. By doing so, you lower the amount of your employees’ taxable income and increase the amount of their take-home pay every pay period. The technical insurance term for this is a “win-win.”
Small Business Healthcare Tax Credits Under the Affordable Care Act
Under the Affordable Care Act (ACA), small businesses can receive tax credits of up to 50 percent of their premium expenses during any two-year period. Per IRS rules, a company can generally claim the small business health care tax credit if it:
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
Arizona also offers state tax credits to small businesses that elect to provide health coverage to their employees if they did offer such coverage previously. The Arizona Health Insurance Premium Tax Credit offers a tax credit that a health insurance company receives for enrolling a new, qualified small business in a group plan.
But the insurer passes the credit on to the insured small business in the form of lower premiums. The credit is based on the total of $1,000 per year for single coverage and $3,000 per year for family coverage or 50% of the annual premium, whichever is less.
For your small business to qualify for this tax credit, it must:
Have been in existence in Arizona for at least one year;
Not have provided health insurance to your employees for at least six consecutive months before applying for the credit, and;
Had at least two but no more than 25 employees during the most recent calendar year. The number of employees includes full-time, part-time, and other employees who are not eligible for benefits.
Group Health Insurance Tax Benefits are Just One of Many Reasons to Provide Your Employees With Coverage. Speak With Us to Learn More
If you are considering obtaining group health insurance coverage for your employees, you should also consider discussing your options with Anderson Insurance Services, an experienced Arizona small business, and individual health insurance broker.
We have 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 during these challenging times.
Contact us to schedule a free consultation about your small business or individual health insurance needs.