3 Key Tax Benefits of Offering Health Insurance for small Businesses

For small businesses, ensuring a stable and thriving workforce can sometimes be challenging. Offering health insurance can be a major perk to attract and retain top talent. Beyond its appeal to potential employees, health insurance can offer valuable tax advantages for small business owners. Here are three essential tax benefits of offering health insurance:

Tax Deductibility:

One of the most straightforward advantages for small businesses is the tax deduction on premiums. Businesses can usually deduct 100% of the premiums they pay for their employees' health insurance. This applies to both federal and state income taxes, meaning you can significantly reduce your taxable income by offering health coverage.

Reduced Payroll Taxes with Section 125/POP:

A Section 125 or Premium Only Plan (POP) is a great tool for businesses. With a POP, your employees can pay their portion of the health insurance premiums on a pre-tax basis. This not only reduces their taxable income but can also lead to savings on payroll taxes for the employer. Furthermore, those with a High Deductible Health Plan (HDHP) can reduce their taxable income by contributing to Health Savings Accounts (HSAs). On the employer side, HSA contributions can typically be deducted from the company's taxes. Another option to consider is the Health Reimbursement Arrangements (HRAs). With HRAs, businesses can set aside funds to reimburse employees for plans they purchase individually, tax-free. Not only are these HRA contributions tax deductible for the business, but they're also exempt from certain payroll taxes.

ACA Tax Credits for Eligible Small Businesses:

The Affordable Care Act (ACA) has provisions that can benefit certain small businesses. If your business qualifies, you could receive tax credits for offering health insurance to your employees through programs like Covered California for Small Business. Factors influencing these credits include the number of employees, average wages, and the percentage of premium costs you cover. For-profit employers can get a tax credit covering up to 50% of their premium expenses, while non-profits can receive up to 35%. However, to be eligible, among other criteria, businesses should typically have 25 or fewer full-time equivalent employees.

In Conclusion, employees consistently rank health insurance as one of the most desired benefits. Not only does offering health insurance help in attracting and retaining the best talent, but it also comes with significant tax benefits for the business. While it may seem like a hefty expense initially, the tax savings and improved employee morale and health can be worth the investment. If you're considering offering health insurance, it's advisable to consult with a broker familiar with your local market to find the best options. If you would like to further look into offering your employees health insurance and want more information about how it will benefit your business, feel free to contact us and let us know how we can help. Schedule a time to meet with us virtually to review your current plan or to select a new plan to fit your health insurance needs for your business.