Great News for Your Small Business: Offering Health Insurance Provides Tax Benefits

As a small business owner, health insurance doesn’t have to break your bottom line.

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Our partners at Oscar + Cigna provide background on tax incentives for offering health insurance

As a small business owner, much of the money you put into health insurance benefits can come right back to you in the form of tax incentives.

Providing your team with health insurance carries a number of short and long-term pluses: Healthier employees are more productive — illness-related lost productivity costs employers $530 billion per year. Employees that feel valued stay with you longer, which lowers turnover costs. A stronger team creates a stronger workplace. And even better for small businesses, the monetary cost of offering health benefits can also be offset with an assist from Uncle Sam.

But attracting (and retaining) the best talent means making your employees feel taken care of. Health insurance is one of the most valued benefits you can offer and the #1 requested benefit by employees.

By offering ways to potentially lower your taxes, the government encourages businesses like yours to provide qualified health plans (QHP). So yes, you can offer health insurance and not break your bottom line.

The tax incentives just waiting to save you and your small business money

Tax exemptions

The contributions you make to employees’ small group health insurance benefits are tax-exempt, according to the Employer’s Tax Guide to Fringe Benefits from the Internal Revenue Service (IRS). This means those costs are declared for informational purposes only and are not part of any tax calculations for your business: they aren’t subject to federal income tax withholding, social security, Medicare, federal unemployment (FUTA) tax, or Railroad Retirement Tax Act (RRTA) taxes, and aren’t reported on Form W-2. Taking advantage of this incentive is particularly valuable — it can lower your tax payments, or in some cases even eliminate them completely.

Taking advantage of this incentive is particularly valuable — it can lower your tax payments, or in some cases even eliminate them completely.

Deductions

When you offer your employees a formal health insurance plan (or make formal contributions to their health care costs), the money you put toward their healthcare can usually be fully deducted as a business expense. Here are a few common health insurance-related deductions:

  • Contributions you make to your employees’ premiums are considered a business expense, so you can write off that cost. To be eligible for this deduction, you typically have to pay at least half of your employees’ premiums, though you aren’t required to make any payments toward dependent premiums.
  • Those employer contributions are also a tax benefit to employees. Here’s how it works: The dollars you commit toward employees’, their spouses’ and dependents’ premiums are an obvious financial plus for them, but are not considered ‘wages’ by the government, and therefore aren’t taxed the same way, for example on their paycheck. So employees are getting more for their money than if you had put those funds toward a raise instead.

Read the rest of the article on Cigna + Oscar’s blog.

Note: This article was originally published on cignaoscar.com. Zenefits has no control over, and assumes no responsibility for, the reliability, quality, or accuracy, of this content.

Cigna + Oscar coverage is insured by Cigna Health and Life Insurance Company.
CA: benefits administered by Oscar Health Administrators. Other states: benefits administered by Mulberry Management Corporation. Pharmacy benefits provided by Express Scripts, Inc. Cigna + Oscar health insurance contains exclusions and limitations. For complete details on product availability and coverage, please refer to your plan documents or contact a representative.

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