Eligible small businesses are required to provide health insurance in Florida. Even if you have fewer than 50 employees, offering health insurance as part of your benefits package can help you attract and retain talent and give your employees peace of mind. But it’s no secret that health insurance is a major cost to both employees and employers. That’s why taking advantage of tax credits may be able to help you offset the cost.
Small Business Health Care Tax Credit
Are small business tax credits available for health insurance? The Affordable Care Act (ACA) offers the Small Business Health Care Tax Credit for qualifying companies. There are a few qualifying criteria you must meet in order to claim this credit on your federal taxes:
- You have 25 or fewer full-time equivalent (FTE) employees.
- The average annual employee wage at your business must be $56,000 or lower.
- Your business must contribute at least 50% to health insurance premiums.
- You offer SHOP health insurance to all of your eligible employees.
If you have additional employees who work fewer than 30 hours a week, or you employ contractors, you are not required to offer them health insurance benefits. Any employees that are eligible for coverage must be offered it and receive coverage from your business. They are allowed to decline, but your business must still offer it to remain compliant with federal law.
Companies with fewer than 10 employees who earn an average salary of $27,000 annually have the highest savings with this tax credit. The smaller your business, the greater the benefit.
If you meet the above criteria, then you can claim the Small Business Health Care Tax Credit to reduce expenses. Healthcare.gov offers a free tax credit estimator to help you calculate your potential savings.
Read the complete guide to small business health insurance.
Premium Tax Deductions
Is health insurance tax-deductible for small businesses? Yes, health insurance premiums that you pay for your employees are tax-deductible. However, some businesses prefer to claim a tax credit because this is matched for every dollar, whereas premium deductibles are only factored into your marginal tax bracket.
To maximize your savings, claim as much as you can, then deduct the remaining premiums from your taxes.
The small business tax credit can be worth up to 50% of the health insurance premium you pay toward your employees’ coverage. Non-profit small businesses can claim up to 35%. The credit is based on a sliding scale with smaller businesses saving more.
To claim this credit, you will need to submit Form 8941 along with your income tax return.
Health Savings Accounts (HSAs)
Health savings accounts have a unique triple tax benefit. Contributions are tax-deductible, investment growth is tax-exempt, and qualified withdrawals are tax-exempt. In order for employees to qualify for HSAs, the account must be paired with a high-deductible health plan (HDHP). They must also not be claimed as a dependent on someone else’s tax return or be enrolled in Medicare.
An HDHP has an annual deductible minimum of $1,600 for individuals and $3,2000 for families. Annual out-of-pocket costs for an HDPD cannot exceed $8,050 for a single person or $16,100 for a family.
HSAs help small businesses save money by lowering their employees’ taxable income. This helps lower your overall tax liability while still offering coverage to your employees. Businesses can also pair HSAs with an HRA, or health reimbursement arrangement, that allows employees to be reimbursed for out-of-pocket medical expenses.
Flexible Spending Accounts (FSAs)
Flexible spending accounts allow employees and employers to save money by lowering tax liability. Pre-tax FSA contributions allow employees to lower their liability, Which ultimately lowers payroll taxes for their employer.
More importantly, qualified medical expenses withdrawn from the FSA are tax-free. Qualifying expenses include deductibles, prescriptions, copayments and certain medical services not covered by insurance.
An important distinction of FSAs is the “use-it-or-lose-it” rule. This means employees must spend their contributions in the account within a year. There is a grace period, so they have until December 31st of the current year or March 15th of the following year to use their funds. Though some FSA plans allow funds to carry over, the general principle is that unspent funds in the account are forfeited at the end of the grace period.
Employer Tax Exclusion
Employer contributions to employee health benefits are tax-free under U.S. law. This means that the money you put toward your employees’ health benefits are not classified as taxable income for them. This is important because it not only lowers their tax burden but your liability as well.
Having attacked exempt status for employer contributions to health insurance allows organizations to offer more comprehensive health packages without dramatically increasing their employees’ taxable income or their business’s payroll taxes.
Because health insurance premiums are not taxable income for employees, this means employers are able to build more robust packages for their team. In turn, this promotes greater company loyalty, boosts retention and strengthens employees’ well-being.
Discover the Best Health Insurance for Small Businesses in Florida
Finding small business health insurance doesn’t have to be difficult with the help of one of our licensed, experienced health insurance brokers. You can give personalized quotes that are based on your budget, business structure, and needs. Contact us today to get started!
