Group insurance plans are traditionally purchased by employers to offer individual and family insurance plans to their employees. The United States Internal Revenue Service allows for tax benefits to employers who purchase group insurance plans. Interestingly, group health insurance plans can become a tax deduction for both the employer and the employee. Let’s discuss the tax benefits of group insurance.
What are the Tax Benefits of Group Insurance for the Employer?
Most group health insurance plans require the employer to pay a minimum towards the cost of the premium. This amount might be anywhere in the range of 50 percent to 75 percent of the premium. The employee is expected to also contribute towards paying for the premium. However, health-related expenses are completely deductible as business expenses. This includes the entire expense of business owners offering health insurance to its employees. Since offering group insurance is 100% tax-deductible, on both a state and federal level, many employers take advantage of that to offer health insurance as a part of a total compensation plan.
Can Small Business Owners Take Advantage Of Tax Benefits of Group Insurance?
Yes, small business owners can benefit from offering group insurance to their employees. In fact, many smaller business owners elect to structure their group health insurance plan in such a way that it becomes cost saving to both the employer and employee. Savvy small business owners will set up the group health insurance premium payments so that employees pay for part of the insurance with their own pre-tax dollars. This essentially minimizes their taxable income, while purchasing a necessity.
How do employees enjoy a tax benefit of group insurance?
To reiterate, group health insurance is fully tax deductible. The cost is a business expense to the business owner, rendering the expense one-hundred percent tax deductible. Employers can structure the employee contribution towards group health insurance with the pre-tax dollars being garnished from their paycheck. This will guarantee the employee pays its share of the group insurance premium; while also minimizing the employee’s gross taxable income.
Understanding the Difference Between Tax Deductions versus Pre-Tax Dollars
Group insurance is one-hundred percent tax-deductible as a business expense. All money spent by the employer is considered their business expense. For an employee to garner a tax benefit from money spent towards group insurance, the employer must structure the payment as a pre-tax payment garnished from the employee’s paycheck. This gives the employee a tax savings method of contributing towards their health insurance.