5 Things To Know About Small Business and Health Care

It can be tough maneuvering the ins and outs of health care when you’re a small business owner (or if you’re anyone really!), from shopping and budgeting plans for you, your family or employees to assessing any tax impact your decisions might have.

But come tax time it’s good to know you may be able to deduct 100 percent of your health care insurance premiums, right? 

“If you qualify, the deduction for self-employed health insurance premiums is a valuable tax break,” says a post on the TurboTax website. “With the rising cost of health insurance, a tax deduction can help you pay at least a portion of the premium cost.”

Here are 5 other tips from the professionals about your small business and health care:

Do the research on plans in your area.

Whether you’re shopping the state exchange or healthcare.gov, learn the differences between the “metal” plan options – platinum, gold, silver and bronze – and their varying benefits, deductibles and premiums.

Be sure to look closely at the networks, especially if you have preferences for particular doctors, a hospital or physical location of care. That wide range of premiums you see among the types of plans? It comes down to the network, says Mark J. Kohler, an attorney, CPA and author of The Tax and Legal Playbook.

“Many people don’t realize that the savings under certain policies are because the insurance company provides a smaller network of doctors under the plan, and it may be stripped of additional benefits, such as dental or vision care,” he writes in a blog on his website.

And, Kohler advises you go beyond the exchanges for your research.  They’re a great place to start, he says, to look at your options but you can also seek out a provider directly, go through an insurance agent or shop the private marketplace before deciding.

See if you qualify for a tax credit.

If you have employees and pay any part of their health care insurance premiums, you may qualify for a small-business health care tax credit.

Kohler calls this a little gem of a credit – you get a dollar-for-dollar credit against any taxes you owe and up to 50 percent of any health care premiums you pay for on behalf of your employees.

There are several simple, but manageable rules, the CPA says. For example, you must cover at least half of the cost of single (not family) health care coverage to qualify. Also, your business must have less than 24 full-time-equivalent employees and they must have average wages of less than $50,000 each a year.

“If you have employees, look into it and run the numbers,” he writes. “It’s a great way to provide a perk for employees that also gives you a tax credit.”

Look for options for small businesses

Take advantage of any edge you can get as a small business when shopping for policies, Kohler says, for example, you might want to opt for a business policy if you are providing insurance for two or more employees.

“Cash in on your business,” says Kohler. “Rely on your status as a small-business owner whenever possible.”

Check out your SHOP options.

Look into the Small Business Health Options Program or SHOP, which was created under the 2010 Patient Protection and Affordable Care Act to help business owners offer health and dental insurance to their employees. (It’s not for the self-employed with no employees.)

Check your state’s SHOP marketplace for participating health plans. One of the advantages of going through SHOP is you can join any time.

“There’s no need to wait for an open enrollment period or pass some sort of waiting period until you can purchase insurance and offer health care protection to your employees,” writes Priyanka Prakash at Fundera.com, a marketplace for small business financial solutions such as loans, credit cards, and banking.  

Consider a Health Savings Account.

If you’re healthy and can go with a health care plan with a higher deductible, which typically means a lower premium, consider getting a Health Savings Account, or HSA.

HSAs are pretax accounts – your contributions are deductible regardless of your income level and the monies grow tax-free. But, Kohler points out, you must have a high deductible/qualifying health insurance plan to open an HSA. 

“The reason I like these for business owners is because, as an entrepreneur, you’ll typically have much more control over your health insurance plan and can use creative strategies to acquire the right type of insurance,” he says.

Money stays in your HSA from year to year and will continue to grow from investments and additional contributions. Tax-free withdrawals can be made at any time for health care expenses such as copays, deductibles, prescriptions, dental, chiropractic, massage therapy, etc.

If you’re “unhealthy,” Kohler writes, you might want a Health Reimbursement Arrangement or HRA (or, you might want both an HRA and HSA).

Sometimes called a Section 105 Plan, an HRA is a good option if you have higher-than-average medical expenses. They work best for people whose insurance plans may not cover everything they need, he says, for example, dental costs, copays, prescription medications, or chiropractic or acupuncture services.

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