If the employer is self-employed, a special rule may apply. Shareholder of 2 percent or more of the stock of an S corporation.Īs we continue to discuss rules below, keep in mind that employers who are not self-employed are considered to be workers, so any rules that apply to workers apply to the employer as well.Member of an LLC classified as a partnership for tax purposes, and.On the other hand, the following types of employers are considered to be self-employed for purposes of health care benefits: These business owners are considered to be employees of the business.
Generally speaking, owners of C corporations and LLCs classified as corporations for tax purposes are not considered to be self-employed. Some employers are considered self-employed and are subject to special rules. Keep in mind that the answers to these issues may differ depending on the legal structure of the business. These are the main questions employers and employees find themselves asking. Obviously, tax issues can get complicated, so you should consult with your accountant or attorney about your specific circumstances.If you find yourself getting confused, just remember that most tax-related questions boil down to one or more of the main issues listed above. In addition, because taxable income is reduced, related employer-paid payroll taxes are also reduced. For example, with just a little paperwork on the employer’s part, a worker can contribute to the cost of health insurance on a pre-tax basis, lowering the amount of the worker’s taxable income and increasing the worker’s take-home pay. Whether an employee’s share of premium is paid with pre-tax or after-tax income.Īlso, the taxability of health insurance can be affected by how you set up the health plan.Whether an employer’s medical reimbursements are taxed as income.Whether an employer’s premium contributions are taxed as income.Whether an employer’s reimbursements for the costs of coverage and care are tax-deductible as a business expense.Whether an employer’s health coverage premium contributions are tax-deductible as a business expense.When discussing taxability of health insurance, there are a few main issues: Before we get started, it’s important to understand a few key distinctions. Below we offer detailed information on the tax implications of offering a group plan for your business. To qualify for a tax credit of up to 35% of premium costs now and 50% in 2014, small business owners must pay at least half of employees’ healthcare premiums and have 25 or fewer full-time equivalent employees who earn an average of $50,000 or less per year.īeyond this general rule, things get a bit more complicated. The small business healthcare tax credits have been available since the 2010 tax year. This increases the employee’s take-home pay and lowers the amount of the employee’s taxable income.Įmployers should also be aware that the Affordable Care Act offers small businesses healthcare tax credits to help offset the cost of insurance. That means you deduct the cost of the premium from the employee’s paycheck before state and federal taxes are calculated and deducted. With just a little paperwork on your part, an employee can contribute to the cost of health insurance on a pre-tax basis. It is possible to set things up so that your employees save tax money. Beyond this general rule, taxes get a bit more complicated.
Generally speaking, any expenses an employer incurs related to health insurance (for employees or for dependents) are 100% tax-deductible as ordinary business expenses, on both state and federal income taxes.
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