It’s tax season, so it’s a good time to look at some known and lesser-known ways to reduce the tax burden on your business. You may be able to take advantage of one or more of these tax benefits.
Employer-Sponsored Health Insurance
Generally, business owners can deduct most (if not all) of the cost of employee health insurance. The Internal Revenue Service (IRS) says if an employer pays for accident and health insurance – including an employee’s spouse and dependents – the employer’s payments are not considered wages and are not subject to Social Security, Medicare, and FUTA (Federal Unemployment Tax Act) taxes or federal income tax withholding. This exclusion also applies to qualified Long Term Care Insurance.
Unfortunately, for employees of S (or Subchapter) corporations, which are taxed in much the same way as partnerships, the cost of health insurance benefits must be reported as income if the employee owns more than two percent of the corporation. More information can be found on the IRS “Employee Benefits” web page.
Health Insurance Tax Credit: The Affordable Care Act (ACA) allows small businesses that provide health benefits for employees to take advantage of a tax credit as long as they contribute at least 50% toward employees’ health premiums.
For most employers, the maximum available tax credit is 50% of the cost of health coverage. Tax-exempt employers are permitted a 35% tax credit.
Generally, the Small Business Health Care Tax Credit is available to employers that:
- Have fewer than 25 full-time equivalent employees
- Pay an average annual wage of less than $50,000
- Pay at least half of employee health insurance premiums (for employee-only coverage, not family or dependent health coverage)
Employers with fewer than 10 FTE employees with wages averaging less than $25,000 annually are eligible for the maximum tax credit.
To claim the Small Business Health Care Tax Credit, you are required to purchase a qualifying health plan through the Small Business Health Options (SHOP) marketplace. In California, that means you have to purchase coverage through Covered California for Small Business. More information is available on the state exchange website.
Paid Leave Tax Credit
One of the added benefits of the Tax Cuts and Jobs Act of 2017 is a provision that allows employers to receive a tax credit if they provide 50% or more compensation to employees taking leave in 2018 or 2019 under the Family and Medical Leave Act (FMLA).
To take advantage of the tax credit, an employer must:
- Have a written leave policy covering all qualifying employees
- Provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee (customarily work fewer than 30 hours per week)
- Provide leave pay of at least 50% of the qualifying employee’s wages
The government offers a 12.5% credit of the cost of the leave benefit to businesses when an employee receives at least 50% of his or her normal wages while on leave. The maximum tax credit is 25% of the benefit’s cost when an employee receives full compensation while on leave.
More information on the paid leave tax credit is available in this article from the Society for Human Resource Management (SHRM).
Qualified Business Income Deduction
Also enacted as part of the 2017 Tax Cuts and Jobs Act, the Qualified Business Income Deduction permits taxpayers to deduct up to 20% of qualified business income (QBI) for a business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. (The deduction is not allowed for C corporations.)
According to the Journal of Accountancy, the deduction is generally available to business owners whose taxable income is below $315,000 for joint returns and $157,500 for other taxpayers. The IRS offers a Q&A on the Tax Cuts and Jobs Act and the Qualified Business Income Deduction.
Find Out If You Qualify
Your accountant, auditor, or tax advisor can offer you guidance about whether any of these tax benefits might be available to you and your business. Your employee benefits agent can also provide you with information on the tax advantages of providing employee health insurance.
6 Things to consider when Choosing an Insurance Agent for Your Business
If you’re a small business owner, health insurance can be a tough nut to crack. But you don’t have to go it alone. There are licensed professionals available to walk you through the process. Using an employee benefits expert doesn’t cost you anything. In fact, it could actually save you money because your agent helps you shop and compare plans. The right insurance agent will find a balance between coverage to address your employees’ needs and a plan that fits your budget.
Here’s what you should consider when selecting a health insurance agent:
1. Experience Matters:
How long has the agent been licensed? Is he or she focused on employee benefits or more general? Your agent’s expertise and knowledge of employee benefits and your market’s leading insurance carriers can benefit you as you compare plans. Before making a decision, be sure to review an agent’s personal information on the California Department of Insurance website. Talking with other business owners about their experiences may also help you narrow your choices
2. Specialist vs. Generalist:
Do the agents you’re considering have a niche? For example, some brokers focus on retailers, while others focus on manufacturing or office settings. If yours is a specialty business, you may want to zero in on agents who have a current client roster that includes others in your industry.
3. Location, Location, Location:
Finding an agent who is familiar with your area’s leading insurance carriers and health care providers is important. An agent whose customers are distant from your worksite may not know as much about the popularity (or problems) of health plans in your community. A “local” agent could save you time in your search for a plan that’s right for your employees and also a good fit for your budget.
4. You Deserve Choices:
Because your employees have different needs, it’s important to work with an agent who represents multiple health plans. Find out who the agent represents and whether your employees will have an opportunity to choose from different types of coverage (HMOs, PPOs, Exclusive Provider Organizations (EPOs), and Health Savings Account-compatible plans) or if they will be stuck with a single plan. If your agent represents an exchange like CaliforniaChoice, you and your employees can choose from a variety of health plans in a single program
5. The Right Fit:
When you are interviewing potential agents, consider their personalities. Make sure you and your employees feel comfortable working with them at open enrollment and for service-related issues throughout the year. Ask yourself if you think the agent seems to care about you, your business, and your employees. Avoid anyone about whom you are unsure.
6. Extras Can Differentiate:
Some agents offer more than just health insurance. Many provide value-added extras to attract and retain customers. These can include online enrollment and other tools to streamline the decision-making process or discounts on health and wellness programs. In addition to health insurance coverage, CaliforniaChoice offers a variety of extras to support employers and bring added value to employees.
Shopping for health insurance without help from an agent can result in you overpaying for your benefits. A skilled agent will provide products that offer comprehensive health coverage for your employees, while still helping you control your costs. If you need help finding an agent in your area, we can help. Click here and simply enter your ZIP Code.