Many small business owners don’t realize that not only can they afford to offer health insurance plans for their employees, but they can also benefit fiscally from doing so. Small business owners can actually deduct health insurance payments from their taxes. When it comes to deducting these health insurance payments, there are two options for small business owners:
- The first option is to use the Medical Tax Credit (MTC). Small business owners who use this will pay out of pocket upfront, and then submit receipts of their purchases that qualify as being health benefits related.
- The second option is to open a Health Spending Account (HSA). An HSA is the best option for small business owners, since their upfront contributions are tax-deductible and also tax-free for the account holder when a health care purchase must be made.
A Health Spending Account functions much like a bank account does. A predetermined sum of money for each employee is put into their own personal HSA. The spending from this account can’t exceed the original amount deposited, making it easier on small business owners to properly budget for their health insurance plan. Usually, the Medical Tax Credit requires employees or business owners to deduct 3% of their taxable income from their medical expenses, then 15% of that number is the tax credit they receive. HSAs, on the other hand, are 100% tax deductible.
It can be bit confusing but companies like Benecaid offer convenient online tools that help you see the savings between the MTC and an HSA using you own information.
For example using the Benecaid calculator, an Ontario business owner with $100,000 in annual income and $6,500 in medical expenses would save $2,265,49 a year by using an HSA versus using the standard Medical Tax Credit.
Small business owners may be surprised by just how much they can save, and should definitely use Benecaid’s HSA calculator to find out just how much.