Life & Health Insurance Exam (National Portion)Taxes, Retirement, and Other Insurance ConceptsEasy
A business provides a group health insurance plan to its employees. From the employer's perspective, how are the premiums paid for this group health insurance generally treated for tax purposes?
- AThey are considered taxable income to the employees.
- BThey are not deductible but reduce the employer's capital gains.
- CThey are tax-deductible as a business expense.
- DThey are subject to a 10% excise tax.
Show answer & explanationAnswer & explanation
Correct answer: C. They are tax-deductible as a business expense.
Employer-paid premiums for group health insurance are considered a legitimate business expense and are therefore tax-deductible for the employer.
Why the other options are wrong
- A. Generally, employer-paid premiums are not considered taxable income to employees; the benefits might be.
- B. This is incorrect; they are deductible business expenses and do not relate to capital gains.
- D. There is no general 10% excise tax on group health insurance premiums.
Tax Treatment of Employer-Paid Group Health Premiums
Premiums paid by an employer for group health insurance coverage for their employees are tax-deductible as a business expense.
- Deductible for employer.
- Not taxable income for employee.
- Encourages employers to offer health benefits.
Memory trick: Employer Pays, Taxman Says: Deduct It, Hooray!