Tuesday, July 14, 2009

Reader Question

An emailed question

.... I've been unable to find information on whether employers themselves receive any type of tax benefit for this (health insurance premium of employees) expenditure. I find it hard to believe that they don't receive some kind of tax advantage. Realizing the complexity of the tax code, can you, with as much brevity as possible, explain any tax benefits employers are entitled to take with their health plan expenses?

The benefit of the tax expenditures we have been discussing flow to the employee, not the employer. When employers pay health insurance premiums, that is an expense of doing business. Revenue - expenses = profit (or loss), so higher insurance premiums costs reduce the profitability of a for profit company and reduce the surplus that a not for profit, like Duke, would have to spend on things like building expansions, new programs, etc. So, deducting business expenses reduces taxable income for a for profit business, but in that sense it is no different than wages paid to employees, social security taxes paid on employee wages, electricity, cost of materials, etc.

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