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Tax Considerations

Tax credit on group health insurance

Under the Patient Protection and Affordable Care Act, qualifying small businesses are eligible for a tax credit on their group health insurance premiums.

Find out if your business qualifies

Taxes on life insurance

According to Section 79 of the Internal Revenue Code, the first $50,000 of an employer-provided group life benefit can be excluded from compensation. For those employees who receive group life insurance coverage over that amount, you must include the cost of the excess insurance as taxable income to the employee.

Use this information to make sure taxes on life insurance are accounted for (PDF)

Employees benefit when you pay disability premiums post-tax

Paying disability insurance premium on a post-tax basis increases the payable monthly benefit an employee receives while on claim1. Here are some examples that show how paying the premium post-tax increases the benefit employees receive.

Employee earning $36,000 per year
(Assumes 25% tax bracket)

60% Benefit
Pre-Tax Premium
60% Benefit
Post-Tax Premium
Gross Monthly Income $3,000 $3,000
Take Home Pay $2,250 $2,250
Gross Monthly Benefit $1,800 $1,800
Tax on Benefit $450 $0
Payable Monthly Benefit $1,350 $1,800
Replacement Ratio2 60% 80%

Employee earning $150,000 per year
(Assumes 35% tax bracket)

60% Benefit
Pre-Tax Premium
60% Benefit
Post-Tax Premium
Gross Monthly Income $12,500 $12,500
Take Home Pay $8,125 $8,125
Gross Monthly Benefit $7,500 $7,500
Tax on Benefit $2,625 $0
Payable Monthly Benefit $4,875 $7,500
Replacement Ratio2 60% 92%

1. This rule applies to disability programs that are set up with the employer paying 100% of the premium (non-contributory), the employer and employee sharing in the cost of coverage (contributory), or coverage where the employee pays 100% of the premium (voluntary). "Tax Choice" disability plans (IRS Revenue Ruling 2004-55) are not subject to the three-year look-back rule. Amending a disability program to be "Tax Choice" makes the plan exempt from the three-year look-back rule immediately.

2. The replacement ratio is calculated by dividing the payable monthly benefit by take home pay.


Group disability tax implications

Since group disability benefits can be structured a number of ways, understanding the tax implications for your business can be challenging.

This summary can help determine the plan type that best fits your needs (PDF)

Deduct dental benefits pre-tax for savings

A Premium Only Plan (POP) is a good way to save on dental benefits. Allowed under IRS Code Section 125, a POP offers tax advantages to your company and employees.

Find out if a POP would work for your company (PDF)



This publication is intended to provide accurate and authoritative information on the subject matter covered The accuracy of this information is not guaranteed and is provided with the understanding that The Principal is not rendering legal, accounting or tax advice. While this communication may be used to promote or market an idea that is discussed in this publication, it is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. Consult with legal counsel or other professional advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

EC 3860C-1 | 04/2012

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