This year the government has implemented health insurance premium tax credits to make health plans more affordable for a wider swath of Americans. With tax season fast approaching, we’re examining whether health insurance can be applied as a tax write off and how to save on health insurance.
Health Insurance as a Tax Deduction for Businesses
If your company offers its own health insurance plan or a contribution to employee’s health care costs, it can be written off as a business deduction. Tax-deductible benefit plans include:
- Payments to group health insurance premiums
- Reimbursements through medical reimbursement plans like Healthcare Reimbursement Plans and Health Reimbursement Arrangements
- Payments to Health Savings Accounts
Employees also benefit, since all of their contributions to these funds are with pre-tax money. They also do not pay taxes on reimbursements that employees accrue from their employers’.
You can learn more in IRS Publication 15-B.
Health Insurance as a Tax Deduction for Self-Employed Individuals
Most self-employed individuals can deduct their health insurance premiums through the line 29 deduction on the 1040 return. Your business income must show a profit and you cannot be eligible for employer-provided insurance.
Health Insurance Tax Credits for Businesses
Smaller businesses may qualify for health insurance tax credits as part of the Affordable Care Act. To earn a tax credit, your company must meet the following criteria:
- Company has less than 25 full-time employees who earn less than $50,000 per year
- Company offers a group health insurance policy that covers at least 50 percent of premium costs
- Company purchases the policy through the Small Business Health Options Program (SHOP) Marketplace (if it’s available in your state). The SHOP Marketplace was designed to make it easier for small businesses to offer medical and dental insurance to employees.
This new small business tax credit is worth up to 50 percent of a business’ contribution toward their employees’ premium costs. It’s highest for small businesses that have fewer than 10 employees – the smaller the business, the bigger the credit.
In order to claim your credit, file Form 8941: Credit for Small Employer Health Insurance Premiums with the IRS.
Health Insurance Tax Credits for Employees
Tax credits are also available for employees who purchase health insurance on their own, and can substantially lower the cost of insurance.
To be eligible, you must:
- Purchase a policy available on your state’s online marketplace (like healthcare.gov)
- Meet certain income limits: The tax credits are available to households with income of up to 400 percent of the federal poverty level
- Not be eligible for employer-sponsored health plans
- Not be eligible for a government-sponsored health plan
While the tax credits only apply to certain individuals or businesses in specific situations, taking the time to learn the rules can help your business understand how to save on health insurance. The government knows that a healthier workforce is more productive, and these new provisions will help you achieve this goal.
Are health insurance tax credits benefitting your business? Let us know in the comments below or tweet us @KabbageInc!