Are payroll health insurance premiums taxable?


Payroll health insurance premiums are subject to tax deductions.

The premiums that you pay for your health insurance is a tax-deductible expense, whether this is bought based on an employer-sponsored plan or if it is bought from the individual market by a self-employed individual.

But for payroll deductions (for employer-sponsored plans) that are meant to pay health insurance premiums to be tax-free, the company is required to offer a cafeteria plan to their employees. A cafeteria plan enables the employee to decide whether to get additional health insurance benefits in exchange for parting with a portion of his pre-tax salary.

With the health care bill, the employer of a small-sized firm may get tax-breaks to help the company pay for the insurance. By this we mean firms having 50 or less full-time employees. The tax credit will be worth up to 35% of the premiums paid f the firm is a for-profit firm. Non-profit firms get up to 25% in tax credits.

Also, employers with more than 50 full-time employees will be fined if they do not offer health insurance to their employees. So, having health insurance would actually mean savings for the company, not just because the premiums are tax deductible but also because employers get to enjoy tax savings resulting from it. This will be fully implemented in the year 2014.

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