Interested in maximizing your tax savings? An Individual Coverage Health Reimbursement Arrangement (ICHRA) provides numerous tax advantages for employers and employees alike. ICHRA reimbursements are tax deductible for both employers and their employees, and they don’t need to be recognized as income tax—a sizable tax benefit for both parties. ICHRAs are a highly-effective means of reimbursing employees for eligible health expenses. Keep reading to learn more about the various tax advantages ICHRAs provide.
ICHRA Tax Benefits for Employers
The primary tax benefits for employers are business expense deductions and the exclusion of payroll taxes. Below, we’ve gone into detail about each of these tax benefits:
1. Business Expense Deductions
The contributions that employers make toward their employees’ ICHRA benefits are tax-deductible business expenses. This permits employers to decrease their taxable income, lowering tax liability.
2. Payroll Tax Exclusions
Employers will be happy to know that ICHRA contributions are not subject to payroll taxes, such as Medicare taxes and Social Security. Subsequently, this helps employers obtain additional cost savings that they wouldn’t otherwise obtain when offering traditional group health insurance plans.
ICHRA Tax Benefits for Employees
The primary tax benefits that employees can take advantage of include tax-free reimbursements and health savings account (HSA) compatibility. Below, we elaborate on both of these tax benefits:
1. Tax-Free Reimbursements
Most reimbursements received through ICHRAs are tax-free for employees. Therefore, because this money is not taxable income, it can result in employees obtaining significant tax savings.
2. HSA Compatibility
If an employee has an ICHRA and a high-deductible health plan (HDHP), they can leverage the HSA compatibility and contribute to it. Any contributions are made on a pre-tax basis, which reduces the employee’s taxable income.
10 Ways to Maximize Your Tax Savings
When employees hear “tax savings,” the motivation to act strikes. Interest is piqued, attention is grabbed, and a sense of financial relief is evoked. The opportunity for financial gain shouldn’t be passed up, especially when made to be so easy. Below are 10 ways to maximize your tax savings with ICHRAs:
- Familiarize yourself with the fundamentals of ICHRAs.
- Select a health insurance plan that fits your unique needs.
- Coordinate your health-related expenses.
- Maximize your reimbursements by submitting requests promptly.
- Document and maintain detailed records of your medical expenses.
- Reimburse premiums and medical expenses for family members.
- Contribute funds on a pre-tax basis for reimbursements and more savings.
- Adhere to the guidelines, rules, and limits of ICHRAs.
- Consult with a tax professional or advisor.
- Regularly review your benefits to keep track of any changes.
Reach Out Today to Learn More
Whether you’re an employer or employee, you can glean tax benefits from utilizing ICHRAs. Remodel Health is a leading ICHRA provider that help employers and employees alike find, understand, and use the best health insurance plan for them. If you think ICHRAs might be right for you, we’d love to talk.
Contact our team today to learn more about ICHRAs and the tax advantages you and your employees can leverage.
