As a business owner, keeping costs down while offering benefits do not seem to go hand in hand. Offering employer-sponsored group health plans may be a way to offer benefits. However, costs are unpredictable from year to year and the policy can be canceled by the insurance company at any time. A solution? How about a Premium Reimbursement Plan.
With a premium reimbursement plan, your company offers employees a monthly healthcare allowance to use on individual health insurance. Employees purchase their own health plan, and are reimbursed up to the premium reimbursement allowance you have made available. Basically, this means you are only paying employees who use the plan. On top of that, you are only paying them up to an annual allowance you have set up.
Premium reimbursement plans help small businesses control costs while offering an affordable benefit to your employees. Plus, the only way an individual health plan can be canceled is through non-payment of the premium. This means employees have access to secure, quality health insurance.
Tax Benefits of Premium Reimbursement to Employers
There are many benefits of a premium reimbursement plan for small businesses. One is control. Reimbursement plans ensure employees use the money on health insurance. If employees do not purchase health insurance, they do not receive reimbursement. As part of the plan, participants are required to submit their documentation (ex: to their premium reimbursement software provider) showing they have insurance and have paid for it.
A second benefit to a premium reimbursement plan is the preferred employer tax treatment option. Setting up a tax-free reimbursement plan (ex: a Section 105 Health Reimbursement Plan) allows companies to save 7.65 percent in payroll taxes on the reimbursements.
For employees, reimbursements are received tax-free as well. Setting up a tax-free reimbursement plan allows employees to save 20 to 40 percent in state and federal income and payroll taxes. The reimbursements do not increase an employee's taxable salary on their W-2 as they are added to the payroll as a tax-free addition, similar to travel expense reimbursements.
A premium reimbursement plan is helpful to employees as well as employers. With this approach, the business uses a Section 105 Medical Reimbursement Plan to reimburse employees for their substantiated individual health insurance costs on a pre-tax basis.In addition to being able to control your costs, you are now offering a tax-free reimbursement. This enables you, and your employees, to save money while offering a quality health benefit.
Additional questions regarding Premium Reimbursement Plans? Insert below and we will answer.