Tax Benefits of Company Sponsored Health Insurance Plans
When you offer a qualifying group health insurance plan to your employees, you can enjoy multiple tax advantages. For example, your business can typically deduct 100% of the premiums it pays. And when you offer group health insurance as part of a total compensation package, you might be able to cut your payroll taxes as well.
In addition, the Affordable Care Act has created new tax advantages for businesses that offer employee health insurance. A new small business Health Care Tax Credit can help you afford health care coverage for your employees, especially for those who are considered low- and moderate-income workers.
You may qualify for a 50% credit off your health insurance costs if you:
- Have fewer than 25 full-time-equivalent employees (FTEs), and
- Pay average annual wages below $50,000, and
- Contribute 50% or more toward employees’ self-only health insurance premiums.
The smaller your business, the larger your credit. It can be worth up to 50% of your contribution toward employees' premium costs (up to 35% for tax-exempt employers). To get this credit (which is subject to limitations), you must participate in the Small Business Health Options Program (SHOP). You can claim the credit for any two consecutive taxable years beginning in 2014.