Year-End Tax Planning: Small Business Medical Plans

December 14, 2022
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If you are a small business owner with 49 employees or fewer, you should have a medical plan for your business. The tax law does not require you to provide healthcare coverage, but you should consider setting up an insurance plan as part of your benefits package. It could help provide some great business tax benefits.

If you already have a medical plan for your small business, make sure you understand the tax laws and are maximizing your business tax deductions before 2022 comes to an end. Here are six year-end tax planning opportunities to consider:

1. Federal Tax Credit

Make sure you claim the federal tax credit that is equal to 100% of the required (2020) and voluntary (2021) emergency sick leave and emergency family leave payments. You likely have already made payments that will qualify for the federal tax credits.

2. Section 105 Plan

If you have a Section 105 plan in place and have not been reimbursing expenses monthly, you can do a reimbursement before the end of 2022 to count the deductions for the current tax year. Also, it’s a good idea to put yourself on a monthly reimbursement schedule for 2023 to maximize your deductions next year.

3. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

If you want to implement a QSEHRA, but you haven’t done so already, get that done now before 2022 comes to an end. If you are late, you could suffer a $50-per-employee penalty if your lateness is discovered.

4. Individual Coverage Health Reimbursement Arrangement (ICHRA)

If you are thinking of the QSEHRA and want to help your employees with more money and flexibility, consider establishing an ICHRA instead. It will provide more financial advantages to your employees and similar tax benefits for your small business.

5. S-Corporation Health Insurance Tax Deduction

If you operate your business as an S-corporation and want an above-the-line tax deduction for the cost of your health insurance, there are two steps you need to take:

  • The S-corp must pay for or reimburse you for the health insurance.
  • You must put that insurance cost on your W-2.

Make sure the reimbursement happens before December 31 and that the reimbursement will show on your 2022 W-2.

6. Group Health Insurance Tax Credit

You can claim the tax credit for the group health insurance you provide your employees. You may qualify to claim a 50% tax credit for some or all of the monies you paid for health insurance in 2022 (and possibly for prior years, as well).

For more year-end business tax planning advice and help with all your business tax deductions for 2022 and beyond, contact Illumination Wealth for professional guidance and expert financial advisement.