Maximizing Employee Benefits Provides Tremendous Value

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A tax deduction for your business, a financial benefit for your employees. What could be better than that? As you get prepared to file your 2021 tax return, here’s a reminder of the many employee benefits that are tax deductible.

  • Retirement plans. Contributions you make to your employees’ retirement plans are usually tax deductible. If your business currently doesn’t offer a retirement plan, the Retirement Plans Startup Costs Tax Credit offers a credit of up to $5,000, for three years, to offset the costs of starting a SEP, SIMPLE, or other qualified retirement plan such as a 401(k).
  • Cafeteria plans. Also known as a Section 125 plan, a cafeteria plan offers employees a choice between receiving compensation in cash or as part of an employee benefit. Employee payments for a cafeteria plan benefit are made pre-tax, resulting a lower taxable income for the employee. Your business also sees a tax cut, saving 7.65% in payroll taxes on each dollar that an employee’s taxable income decreases.
  • Health care premiums for your employees. Premium contributions by a business for employees and the employee’s spouse and qualified dependents are 100% deductible as a business expense.
  • Health reimbursement accounts. Reimbursements provided by employers for medical expenses and health care coverage of employees are treated similarly to employer-provided premium contributions as long as certain rules and documentation requirements are met.
  • Tuition reimbursement. Businesses can deduct up to $5,250 per employee per year for money spent on tuition or education reimbursement.
  • Publications and other resources. Professional and other continuing education publications purchased for employees are tax deductible by your business, as are uniforms and tools.
  • Food and beverages. The entire cost of a meal purchased by employees as part of a per diem allowance can be deducted by businesses through the end of 2022.

What You Need to Do:

  • Stay organized. Lots of worthwhile employee benefits can mean lots of paperwork. Some benefit programs, such as retirement plans, have anti-discriminatory guidelines that must be followed. So stay organized and call for help if you have compliance-related questions.
  • Stay in touch with employees. Let your employees know about all the benefits that your company offers. Consider reviewing the value of the benefits during salary actions or as part of developing W-2s. This makes the cost of your benefits more visible to your employees.
  • Review annually. Annually revisit your existing benefits to make any necessary changes, including deciding whether to expand your current benefits offering. Always be on the lookout for new ideas for benefits that could either be implemented immediately or in the near future.

These are just some of the employee benefits that you can deduct on your business’s tax return. So remember to take advantage of them and develop a plan for next year.

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