6 Key Benefits of Offering a Medical Plan for Small Businesses

If you’re a small business owner with fewer than 50 employees, you may know that current tax law doesn’t require you to provide a medical plan for your team. However, opting to offer one can bring significant benefits—not only to your employees but also to your bottom line. Here are six financial opportunities to consider that make implementing a medical plan well worth it:

1. Maximize Federal Tax Credits with Amended Returns

If you provided paid sick and family leave in 2021, you could still claim up to $32,220 in federal tax credits for yourself—and an equivalent amount for your employees. Many small-business owners are eligible for credits they may have overlooked, so it’s worth checking if your payments meet the qualifying criteria. Filing an amended return to capture these credits can result in substantial savings.

2. Set Up or Update Your Section 105 Reimbursement Plan

If you currently have a Section 105 plan in place but haven’t kept up with monthly reimbursements, now’s the time to correct that. Complete a one-time reimbursement to cover your 2024 deductions. Then, establish a consistent monthly reimbursement schedule for 2025. Regular reimbursements ensure that you can take full advantage of the deductions available to you as a business owner.

3. Implement a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

If you’ve been considering a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) but haven’t set it up yet, make it a priority. Although it’s a bit late in the year, establishing the plan correctly can save you from penalties. You might save as much as $50 per employee. With a QSEHRA, you can provide tax-free reimbursements to employees for medical expenses. This includes premiums for health insurance they purchase independently.

4. Consider an Individual Coverage Health Reimbursement Arrangement (ICHRA)

If you’re looking to offer even more flexibility and financial support for your employees, consider an Individual Coverage Health Reimbursement Arrangement (ICHRA) instead of a QSEHRA. The ICHRA allows employees to use funds for individual health insurance coverage, giving them greater choice and potentially expanding their benefits.

5. Secure an Above-the-Line Deduction as an S-Corporation Owner

If your business operates as an S-corporation and you want to claim an above-the-line deduction for health insurance costs, there’s a two-step process. First, the S-corporation must either pay for or reimburse you for your health insurance expenses. Then, these costs need to be recorded on your W-2. Ensuring these expenses are recorded before the year ends helps you optimize your tax benefits.

6. Claim a 50% Tax Credit for Group Health Insurance

If you’ve recently introduced group health insurance for your employees, review whether your business’s pay structure and employee count qualify you for a 50% tax credit. This tax credit can cover half the cost of health insurance premiums for eligible small employers, providing a significant return on your investment in employee health benefits.

Why a Medical Plan is Worth It

Implementing a medical plan for your small business—even if not legally required—can yield both financial and employee retention benefits. From tax credits and deductions to enhanced employee satisfaction, a well-structured medical plan offers a pathway to a healthier, more productive workplace and a stronger financial future for your business.

For help planning your benefits package and implementing a medical plan that suits your company’s specific budget and needs, contact Illumination Wealth.