As 2024 comes to a close, it’s crunch time for small business owners looking to maximize their tax savings. One of the easiest ways to do this is through smart planning around your business’s medical plans. Whether you already have a setup in place or are considering new options for next year, there are some simple steps you can take before December 31 to make a big difference.
Here are five key strategies to help you make the most of your medical plans—and save money while you’re at it.
1. Claim Your COVID-19 Relief Tax Credits
Did you provide paid sick or family leave in 2021 as part of the COVID-19 relief measures? If so, there’s a good chance you could still claim federal tax credits—potentially up to $32,220 per person!
These credits cover emergency sick and family leave payments you made to employees (or even yourself if you’re self-employed). The best part? They offer a dollar-for-dollar reduction in your taxes. Even if you’ve already filed your 2021 tax return, you can still amend it to claim these credits. But don’t wait too long—deadlines to amend returns are quickly approaching.
Taking action now could mean extra money in your pocket, so it’s worth taking another look at those 2021 records.
2. Wrap Up HRA Reimbursements for 2024
If you’ve set up a Section 105 Health Reimbursement Arrangement (HRA), it’s critical to process all reimbursements by December 31 to qualify for deductions this year. An HRA allows you to reimburse yourself (or your employees) for medical expenses and deduct those costs as a business expense.
Haven’t been reimbursing expenses monthly? No problem—start fresh in 2025 with a regular reimbursement schedule to stay ahead. For now, just make sure to finalize any outstanding reimbursements before the year ends.
3. Explore QSEHRAs and ICHRAs for Flexible Coverage
Not every business needs the same kind of medical plan, which is where reimbursement arrangements like QSEHRAs (Qualified Small Employer HRAs) and ICHRAs (Individual Coverage HRAs) come in. Both offer tax-advantaged ways to support your team without taking on the full burden of traditional group health insurance.
QSEHRAs are great for small businesses with fewer than 50 employees. They let you reimburse employees for individual health insurance premiums and out-of-pocket medical expenses. Plus, they’re tax-free for both you and your employees. Just note: if you want your QSEHRA ready for January 1, you should act fast to meet IRS notification requirements.
ICHRAs, on the other hand, allow businesses of any size to reimburse employees for individual health plans instead of offering group coverage. They provide flexibility and scalability, especially if your team has diverse healthcare needs.
Both options are worth considering if you’re looking for cost-effective ways to support employees while saving on taxes.
4. Don’t Forget S Corporation Health Insurance Deductions
If you’re an S corporation owner, you probably know how tricky health insurance deductions can be. To secure an above-the-line deduction on your Form 1040, the business needs to:
- Pay for or reimburse your health insurance premiums.
- Report the health insurance costs on your W-2.
If you skip these steps, the deduction for health insurance gets moved to your itemized deductions, which means you might lose out on the full benefit. The good news? You still have time to ensure your W-2 reflects these expenses before the year ends.
5. Check Eligibility for the Small Employer Health Insurance Tax Credit
Providing health insurance to employees doesn’t just help attract and retain great talent—it can also reduce your tax bill. If you’re covering at least 50% of your employees’ health insurance premiums, you may qualify for a 50% tax credit.
This credit is especially generous for smaller employers with fewer than 10 full-time equivalent employees whose average wages are less than $25,000. However, the credit begins to phase out as your business grows, so it’s worth double-checking your eligibility.
Keep in mind, this credit only applies to group health insurance plans, not individual reimbursements like QSEHRAs or ICHRAs.
Start 2025 with Confidence
Year-end planning doesn’t have to be overwhelming. By taking a little time now to review your medical plans and reimbursement arrangements, you can potentially save big on your taxes while ensuring your business is set up for success in the new year.
Not sure where to start? Take these five steps to your tax professional or financial advisor, and let them help you make the most of the opportunities available to you.
Here’s to ending 2024 on a strong note—and starting 2025 with your business in great shape!
If you’d like more insights on year-end strategies or have questions about these tips, feel free to reach out. We’re here to help small businesses like yours succeed.