Health Care Tax Deductions Available to Business Owners

by Miranda Marquit · 0 comments

Now that it’s open enrollment time, many are thinking about health insurance costs. Business owners and the self-employed have a number of considerations when preparing for open enrollment and deciding how to move forward.

The good news is that business owners and the self-employed can receive some tax deductions related to their health care.

Tax Credits for Employers Who Provide Health Care

If you are a small business owner, you can receive a tax credit when you offer health insurance to your employees. Here are some of the requirements for getting the tax credit as a small business, according to the IRS:

  • Fewer than 25 full-time equivalent employees
  • Average annual wages for employees are less than $50,00o per year (adjusted for inflation since 2014)
  • Uniform percentage must be paid for all employees, equal to at least 50% of the premium cost of employee-only insurance

You can consult with a knowledgeable tax professional or check with the IRS to confirm your eligibility and see if there are other requirements your business needs to meet in order to receive the tax credit.

This is one way to attract high-quality employees to your business while receiving a tax benefit for your cost.

Make sure you understand the ACA requirements if you have a larger business as well since you don’t want to be caught in violation of the law.

Self-Employed Health Insurance: Tax Deduction

Even if you don’t own a business that employees others, you can still receive a tax benefit if you are self-employed. What you pay for your health insurance is tax-deductible to some degree.

Pay attention to your health insurance costs. Every year that I’ve had to pay for my own health insurance as a result of being self-employed, it reduces my business income. It’s not as valuable as a tax credit, which is a dollar-for-dollar reduction in what you owe, but it still can help reduce the sting of paying for it.

Also, if you qualify for a subsidy under the ACA, it can be worth going through your state exchange, or through the federal exchange to see what plans are available. The subsidy can reduce what you owe in premiums, and, in some cases, can result in a tax refund. Make sure you consult with someone knowledgeable who can help you see what you might be able to accomplish under the ACA.

High Out-of-Pocket Health Costs

If you have high out-of-pocket health costs, you might be able to get a tax deduction if you itemize. If your qualified health costs exceed 10% of your income, you can take a tax deduction. Check with a tax professional to plan your deductions and see if it is worth the trouble.

Another consideration if you have a high-deductible plan is to make use of a Health Savings Account. As you go through open enrollment, take a look at what coverage you need, and if a high-deductible plan could work for you. You can receive a tax deduction for your HSA contributions and the money grows tax-free when it’s used for qualified health care costs.

With a little planning, you can reduce the impact of health care costs on your budget with the help of tax benefits.

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