Your small businesses members want to know more about the tax deductibility of medical premiums from My Benefit Advisor
What are Pre-Tax Medical Premiums?
A pre-tax medical premium is deducted from the employee’s pay before any income taxes or payroll taxes are withheld and then paid to the insurance company. This can deliver savings of up to 40%, depending on one’s tax bracket. Pre-tax premiums are typically employer-sponsored plans and include the following:
· Major medical coverage purchased through your employer
· Supplemental/voluntary coverage purchased through your employer
· Healthcare spending account contributions, such as FSAs
· Employer-sponsored reimbursements for medical premiums
After-Tax Medical Premiums
If one does not want to participate in their employer’s pre-tax plan, or if the employer doesn’t offer a pre-tax plan, one can elect to deduct their medical premiums on an after-tax basis. After-tax premiums include the following:
· Major medical coverage purchased on one’s own (for example, purchasing individual health insurance through the Health Insurance Marketplace).
· Supplemental/voluntary coverage purchased on one’s own.
Tax deductions for after-tax premiums
After-tax plans can still offer some savings. One can still list premiums as an itemized deduction on Schedule A when one file’s their income taxes, for all medical expenses and premiums that exceed 7.5% of one’s income. Additionally, most self-employed taxpayers (including owners) can deduct health insurance premiums using Schedule 1 for Line 16 on their tax form 1040.
HRAs deliver pre-tax benefits with after-tax flexibility
With a health reimbursement arrangement (HRA), one purchases a plan on the individual insurance exchange using after-tax dollars. The employer then reimburses for premiums, and often other out-of-pocket medical expenses, up to an employer-defined amount (this is typically a monthly or annual “allowance”). The reimbursements are made on a pre-tax basis, so one gets the same payroll and income tax benefits as one would with a traditional pre-tax plan.
In addition, the employee gets the benefits of an after-tax plan. They choose the exact plan they want and need, typically from a much larger set of carriers and offerings than your employer might offer. Employees can drop the plan at any time and they can take it with them if they leave their employer. (If you leave the employer, you will lose the pre-tax reimbursements.)
For more information
Contact Jim Pitts at 610-684-6930 or email him at firstname.lastname@example.org or visit www.affinity.mybenefitadvisor.com