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Tip If you haven't spoken to your insurance representative recently, we suggest you contact him or her to be sure your plan provides the required coverage. |
Tax Guide |
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Life insurance
The cost of group-term life insurance coverage up to $50,000 per employee is deductible on the "employee benefits" line (Line 14) of your Schedule C, unless you are directly or indirectly a beneficiary of the policy. Premiums paid for life insurance on yourself as the business owner are not deductible as a business expense.
Health insurance
Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals have been given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. As a result, all employers that are “applicable large employers” including for-profit, non-profit, and government entity employers, are subject to the Employer Shared Responsibility provisions, also known as the employer mandate. Therefore, starting in 2015, if you are an applicable large employer that does not offer affordable health coverage that provides a minimum level of coverage to your full-time employees (and their dependents), you may be subject to an Employer Shared Responsibility payment.
The vast majority of businesses fall below the threshold that makes them subject to the Employer Shared Responsibility provisions. If you are a small employer with fewer than 25 full-time equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of your employee health insurance premiums then you may be eligible for the Small Business Health Care Tax Credit.
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Group health benefits that you provide to employees and their dependents are generally deductible. The cost of your own health benefits under the plan is also 100 percent deductible.
Self-employed individuals - that is, sole proprietors, partners, LLC members, and S corporation shareholders owning more than 2 percent of the shares - can deduct 100 percent of their own health insurance premiums. However, this deduction is not claimed on Schedule C. Rather, health insurance premiums for yourself and your dependents are deductible on the first page of your Form 1040, rather than on your business tax form (e.g., Schedule C for sole proprietors).
As a result, the cost of the premiums serve to reduce your adjusted gross income (AGI), which in turn can increase your ability to take advantage of certain tax breaks like Roth IRAs and tax breaks for education. Since the premiums are not considered an itemized medical deduction, they are not limited by the 10 percent of AGI floor (7.5 percent if taxpayer or spouse is over age 65), as are most medical deductions.
In addition, certain low- to moderate-income individuals who purchase qualified health care coverage through an American Health Benefit Exchange located in their state of residence are entitled to a refundable income tax credit equal to the premium assistance credit amount.
You must know the allowable health insurance premium deduction to compute the premium tax credit because the health insurance premium deduction is allowed in computing adjusted gross income and the AGI is necessary to compute the premium tax credit. A taxpayer who is eligible for both the deduction and a premium tax credit may have difficulty in making the determinations of those items.
Therefore, the IRS has issued guidance that is intended to provide taxpayers with calculation methods that resolve the circular relationship between the deduction and the tax credit. This guidance includes details for taxpayers who have a premium assistance amount with coverage months for which no health insurance premium deduction is allowed.
The use of the calculations provided by the IRS is optional; a taxpayer may determine the amounts of the deduction and the tax credit using any method that satisfies the requirements of the applicable tax law and regulations. Your tax advisor can help you determine how to get the greatest benefit from the deduction and credit available to you.
Long-term care. Long-term health care contracts are arrangements designed to provide coverage if you become chronically ill or disabled after reaching a specified age, such as 50. Long-term care policies greatly expand the time period over which benefits will be paid out, when compared to standard accident and health policies. Another advantage is that, unlike Medicare coverage, long-term care contracts may cover the cost of custodial care, as well as skilled nursing care. These two advantages often make long-term care contracts a preferred way of pre-funding nursing home care for the elderly.
If certain specified requirements are met, long-term care insurance contracts issued after December 31, 1996 will generally receive the same income tax treatment as accident and health policies.
That means that amounts received under a long-term care insurance contract are nontaxable, although the exclusion is capped at $330 per day on per diem contracts in 2014 and 2015 (as adjusted annually for inflation). It also means that company-paid premiums for long-term care are not taxable for the employee. If you purchase the policy as an individual rather than through your company, the premiums count as deductible medical expenses--although the amount that can be counted varies with your age.
For tax years beginning in 2014, the maximum deductible amounts are as follows:
Employer-provided long-term care premiums are deductible by the employer as employee benefits. Sole proprietors, partners, LLC members, and S corporation shareholders owning more than 2 percent of the shares can include long-term care premiums in the health insurance premium deduction on page 1 of Form 1040 up to the eligible premium amounts listed above.
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