There are various markers for the success of a small business, but one is undoubtedly how they treat their employees. Part of this is ensuring they have access to a fair benefits package. In order to offer good benefits, you’ll need to implement careful financial planning. The benefits employees receive should remain stable, so it should be a package that’s feasible indefinitely.
Offering generous benefits is beneficial to businesses in many ways. It can help attract new employees and keep them longer, but it can also help your business when it comes to tax season. The money you put into employee benefits can come right back to you in the form of tax incentives.
Like wages, commissions and salaries, the cost of employee benefits is often tax deductible. For example, life insurance coverage, dependent care assistance, cafeteria plans and education assistance programs may be eligible for deductions, in addition to other benefits. Bonuses, awards and gifts of nominal value can also be deducted.
Taxable or Nontaxable?
Some types of employee benefits are treated as tax-free, and therefore exempt from FICA taxes, such as health insurance and employer contributions to retirement plans. Taking advantage of tax-exemptions can significantly lower your tax payments, or even eliminate them completely.
In addition to deductions and exemptions, a small business may qualify for a tax credit that can cover as much as 50% of health insurance premiums you pay. To qualify, there are some requirements. For example, you must have fewer than 25 full-time employees, and their average salary must be less than $53,000 annually. Your business must also offer a group health insurance policy and pay at least 50% of employee premium costs. And you must cover yourself through the same plan as your employees.
The tax advantages for employee benefits can be complicated. To ensure you’re receiving every possible tax benefit in relation to employee benefits, you’ll need to fill out the proper forms during tax time and be sure you’re meeting all the requirements. There are many variants based on the type of business you have, so consult a tax expert if you need assistance. They may be able to help you determine what additional fringe benefits can help your staff while simultaneously saving tax dollars.