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Interview Patty

Tax Advantage for Group Insurance vs. Individual Plan

Business Woman Coaching in Houston focusing on Determining Business Direction

Different types of insurances cover individuals and families through group plans, which are sponsored by employers, or individually owned plans bought directly from insurers. Employers can take advantage of tax incentives when they provide insurance coverage to their employees. Tax breaks are also available to individuals who own plans not sponsored by employees, such as nontaxable benefits and tax-deductible medical expenses.

1. Deductible Expenses - The Internal Revenue Service allows businesses to write off the total costs of providing health care, disability and life insurance coverages to their employees. Self-employed individuals also receive tax breaks for insuring themselves. They are allowed to deduct the total premium amounts of their individually owned health insurance plans from their adjusted gross income, or AGI.

2. Pretax Premium Payments - Another tax advantage for group insurance plans involves how they are funded. Employees covered by group insurance plans pay their premiums with pretax dollars, which is money that hasn’t been taxed by the IRS. This tax break lowers the taxable income of those covered by the plan. Those who have individual insurance plans pay premiums with taxed dollars.

3. No Taxation of Benefits - Some individual insurance plans provide a tax advantage when it comes to benefit payments that group-sponsored plans don’t. For example, disability insurance benefits distributed from individual plans are not considered taxable compensation because premiums are paid with after-tax dollars. Group disability insurance plans, however, distribute taxable benefits if premiums are paid with pretax dollars or are partially or totally paid by employers.

4. Considerations - The IRS allows individuals who are paying for insurance plans such as health and long-term care, or LTC, to deduct their premium payments if they exceed 7.5 percent of their AGI. It doesn’t matter if the plans are group-sponsored or privately owned. To deduct premium payments, the amounts have to be lumped together with other medical expenses such as deductibles, co-payments, etc. For LTC plans, age determines the extent to which premiums are tax deductible.

Source: Small Business

Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.

Business Woman Coaching in Houston focusing on Determining Business Direction.

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