In some cases, the benefits your small business offers could be the deciding factor in whether someone chooses to accept a job with your company. Potential employees evaluate more than just their take-home pay; they also calculate the value of add-ons like health insurance and employee assistance programs.

While these can be great benefits for employees, as the business owner, you can also benefit from them – even financially. Understanding the tax advantages of certain employee benefits may help you decide which ones are best for your company to offer. Learn how they can boost your bottom line with this look at employee benefits that have tax advantages for your business.

IRS-qualified employee health plans

The type of tax advantages you can gain through providing health insurance coverage can depend on the size of your business. In order for your health insurance coverage to be tax deductible, it must meet certain IRS-established criteria.

As of Jan. 1, 2015, businesses with 50 or more full-time employees are required to provide affordable health insurance coverage to workers as part of the employer shared-responsibility mandate component of the Affordable Care Act. However, if you have fewer than 25 full-time or full-time-equivalent employees and you provide health care coverage, you can receive a small business health care tax credit.1

To qualify, you must pay for at least 50% of the health care coverage costs for some of your employees, and the average annual wage you pay must be below $50,000. If your company has fewer than 50 workers, you can purchase health insurance for your employees through state or federal insurance exchanges.1

Life insurance plans

The life insurance premiums your company pays out are considered tax-deductible business-related expanses as long as the insured individuals are employees or officers at your company. Also, tax laws spell out that the company cannot be a direct or indirect beneficiary of the policy in order for it to be deductible.2

If you offer group term life coverage to employees, your company is eligible to deduct premiums on the first $50,000 of benefits per employee. That makes it a win-win for you and the employee. Because it’s more affordable due to the deduction, you may be able to offer this benefit without putting as much of a financial burden on your company.3

Section 125 plans

A Section 125 plan is a benefit that’s also known as a Cafeteria Plan. It allows employees to convert taxable benefits into non-taxable benefits by deducting them from their paychecks before taxes are taken out. These plans can be beneficial for workers with ongoing medical, dental or even childcare needs. The funds get set aside for the employee to use on qualified expenses. A Cafeteria Plan allows the participating employee to save about 30% in taxes on things they're already buying with their post-tax income.4

The employee isn’t the only one who benefits, however. There are tax advantages to you as the employer because you’ll save on the FICA taxes you pay and on your federal and state unemployment tax bill.4

401(k) profit-sharing plans

Profit-sharing in a 401(k) plan is another way to benefit both your bottom line and your employees’ satisfaction. Profit-sharing allows you to make contributions to employee retirement savings without increasing the amount of income they’ll need to pay taxes on. These contributions aren’t subject to withholding for Social Security or Medicare, so employees get more of the money, and all of your contributions are tax deductible.5

Education assistance

Certain educational expenses are deductible, but as a general rule, you can write off any costs associated with improving or maintaining job-related skills. You can also write off the expense of continuing education that's required for an employee to remain in their current job.6

Employee Assistance Programs

Employee Assistance Programs, or EAPs, provide workers with support resources for personal issues they may be dealing with. These might range from stress and depression to substance abuse or other addictions. EAPs also can help employees with work-related problems like burnout and conflict on the job or family matters and financial issues.

A good EAP can have a positive impact on work performance and can help curb your costs by reducing turnover and cutting down on your number of group health insurance claims, mental health claims and worker’s compensation claims.7 It also has tax benefits – these plans are completely tax-deductible.8

Find the best benefits for your business

With so many benefits to choose from, your small business can select options that are good for employees and for your bottom line. Keep in mind that the rules for some of these options may differ based on the type of business structure you have. Work with an experienced financial planner or benefits provider to make sure you’re implementing plans that are the most advantageous for your company.

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