Choice Stories

March 17, 2017

Maximizing Your 2016 Tax Return: Health Insurance Deductions

Maximizing Your 2016 Tax Return: Health Insurance Deductions

Want to make the most of your business tax return for 2016? Of course you do. Don’t overlook the tax deductions available to you for providing health insurance and other benefits to your employees. Under current law, employer-paid premiums for health insurance are exempt from federal income and payroll taxes.  The employer-sponsored health insurance exclusion is the nation’s largest annual tax expenditure, costing the federal government an estimated $260 billion in income and payroll taxes this year.  (Last year, it costs the feds $216 billion in lost revenue – nearly three times the mortgage interest deduction, according to the New York Times.) Critics say the tax subsidy for employer-supported health insurance has likely contributed to the increasing cost of health care. That’s because it encourages employers (and employees) to purchase more comprehensive health insurance – often with reduced cost-sharing and/or less-stringently managed care.

Tax Break Qualification For Small Businesses 

Leading up to the early March 2017 release of the Republican-sponsored American Health Care Act (AHCA), also known as Trumpcare, some were expecting the Affordable Care Act replacement proposal would call for elimination of the tax break for employer-sponsored health insurance. However, the draft bill includes neither an elimination nor a cap on the employer tax break. (Currently, more than 175 million Americans get their health coverage through their employers.) Every dollar you spend on employee wages is subject to income and payroll taxes; however, each dollar you spent on employee health insurance is tax deductible. You can also deduct contributions/reimbursements made through a Health Reimbursement Arrangement (HRA) as well as contributions to employees’ Health Savings Accounts (HSAs). Over and above standard tax deductions, small businesses may qualify for a health insurance tax credit as part of the ACA. Qualification depends on your group size, contribution toward employee premiums, and how and where you purchase your coverage. Ask your accountant if your business qualifies. When you’re comparing health plans for your employees, a benefits broker can be of tremendous assistance. If you don’t already have a broker, we’ll help you find a local CaliforniaChoice broker to speak with about your group’s health insurance needs.

Your Beginner's Guide to Choosing a Small Business Employee Benefits Program

Do you need help choosing the right health benefits for your employees?
This guide can help!