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Top 5 Insurance Tax Implications for 2013

Nov. 18, 2013
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With the overturning of the Defense of Marriage Act earlier this year and the passing of the Affordable Care Act, many U.S. business owners are thinking about what these important changes mean to them. NerdWallet turned to Paychex, one of the top 25 largest insurance brokers of U.S. Business, according to Business Insurance Magazine, for their list of the top 5 tax implications of insurance for businesses in 2013.

Top Insurance Tax Implications (Provided by Paychex)

Group Health and the Defense of Marriage Act – The federal tax treatment of certain benefits – importantly including the tax-free treatment of the cost of group health benefit coverage – depends upon spousal status. The recent Supreme Court ruling overturning of the Defense of Marriage Act could have advantageous tax implications for ‘same sex’ spouses in states where same-sex marriage is recognized. In some cases, retroactive refunds may be available to employers and employees.

Group-term Life Insurance Tax Exclusion – For employers providing group-term life insurance to their employees, there is a tax exclusion for the first $50,000 of coverage provided under a policy carried directly or indirectly by the employer. The imputed cost of coverage beyond $50,000 has to be included in income, and is subject to social security and Medicare taxes.

ACA Small Business Tax Credits – A key feature of the Affordable Care Act (ACA) is the availability of a tax credit to small businesses under some circumstances, which can serve to offset the health insurance premiums paid by the business. The amount of the credit varies on several factors, such as the number of employees and the average wage paid.

ACA and Health Care Premiums – Another ACA component is a requirement that a defined percentage of health care premiums go towards actual healthcare services vs. overhead or administrative costs. If a health insurer does not meet this ratio, they must return an associated rebate to individual policyholders. Depending on how this rebate is provided to the insured, there may be tax implications.

Unemployment Insurance – A large expense category for many employers is contributions to unemployment insurance (UI). However, an employer’s UI tax rate can be reduced through active management.


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