If you own a small business with 1-49 employees, you should have a medical plan in place. Tax law does not require you to provide medical coverage, but you should. Not only can it help you attract and retain better employees, but there are excellent tax advantages that come with having a company medical plan in place.
Most of the tax rules that apply to medical plans are straightforward if you have 49 employees or fewer. Here are 6 excellent year-end medical plan strategies to consider before 2021 comes to a close:
Make sure you are claiming the federal tax credit equal to 100% of the required (2020) and voluntary (2021) emergency sick leave and emergency family leave payments. It is likely you have had employees lose work time because of Covid-19 and that you have already made qualifying payments. Don’t miss out on the tax credits!
If you have a Section 105 plan and you have not been reimbursing expenses monthly, you should do a cumulative reimbursement payment before December 31. This will allow you to qualify for your 2021 Section 105 tax deductions. For 2022, you should try to get yourself on a monthly reimbursement schedule. It will make the payments more manageable and keep your business tax plan more organized.
If you are looking to implement a QSEHRA as part of your tax plan, make sure you get it done properly as soon as possible. You are technically already late, so you may be subject a $50-per-employee penalty if you are found out.
If you are thinking about implementing a QSEHRA, you may want to consider an ICHRA instead. Depending on your situation, this arrangement may offer your employees more money and flexibility. The tax advantages and employee benefits could be worth the switch.
If you operate your business as an S corporation and you want to claim the above-the-line tax deduction for your health insurance expenses, you need to take two important steps:
Make sure that the reimbursement happens before December 31 to qualify for the deduction and that the reimbursement is set up properly on your W-2 to be included in your gross income for 2021.
If you provide group health insurance for your employees, claim the tax credit available to your business. See if your pay structure and/or number of employees will put you in a position to claim a 50% tax credit for some or all of the monies you paid for health insurance in 2021. You may even be able to claim health insurance payments from previous years if they were not made with your tax returns.
These are a few great tax tips for year-end medical plan strategies. Take this time to get your medical plan and expenses figured out for 2021 and plan ahead for 2022. Understand what you can and cannot deduct as part of your business taxes and make sure everything is in order before the calendar turns to January and some moves may simply be too late.
For help with all your business planning and tax planning needs, contact Illumination Wealth. Our business advisors and tax specialists are here to guide you through these complex issues and maximize your tax benefits.