Year-End Medical Tax Strategies

November 25th, 2020 at 12:53 PM

All small-business owners with one to 49 employees should have a medical plan in their business. 

Sure, the tax law does not require you to have a plan, but you should. 

Most of the tax rules that apply to medical plans are straightforward when you have fewer than 50 employees. 

Here are the six opportunities for you to consider: 

1. If you did not obtain a PPP loan, then you should make sure to claim the federal tax credit equal to 100 percent of required emergency sick leave and emergency family leave payments made pursuant to the FFCRA. And as long as you are doing that, make sure to obtain the employee retention tax credit too.
2. If you have a Section 105 plan in place and you have not been reimbursing expenses monthly, do a reimbursement now to get your 2020 deductions, and then put yourself on a monthly reimbursement schedule in 2021.
3. If you want to but have not implemented your QSEHRA, make sure to get that done properly now. You are late, so you could suffer that $50-per-employee penalty should you be found out.
4. But if you are thinking of the QSEHRA and want to help your employees with more money and flexibility, be sure to consider the ICHRA. It’s got more advantages.
5. If you operate your business as an S corporation and you want an above-the-line tax deduction for the cost of your health insurance, you need the S corporation to (a) pay for or reimburse you for the health insurance, and (b) put it on your W-2. Make sure that the reimbursement happens before December 31 and that you have the reimbursement set up to show on the W-2.
6. Claim the tax credit for the group health insurance you give your employees. If you provide your employees with group health insurance, see whether your pay structure and number of employees put you in a position to claim a 50 percent tax credit for some or all of the monies you paid for health insurance in 2020 and possibly in prior years.

Mark S. Fineberg, CPA