The Problem with Paying Health Insurance by a Salary Bonus

Some employers prefer giving their employees more money and letting them purchase their own insurance. Unfortunately, this strategy costs employer and employee a lot of money. The reason: taxes. When employees buy insurance on their own, they pay with after-tax dollars. It makes much more sense to set up a company group health insurance plan than pay a salary bonus so employees can buy insurance. Here’s an example to show you how this is true:

 

Assumption:

Cost of health insurance in California for single employee under age 30: $100/month

Scenario 1: Employer Pays Salary Bonus for Health Insurance

Employee Bonus to Pay Health Ins.$131.00
Pays: Federal Income Tax @ 13%$17.03
State Income Tax @ 2%$2.62
State Disability Ins. @ 0.5%$0.66
Social Security @ 6.2%$8.12
Medicare @ 1.45%$1.90
Total Extra Paid$30.33
Net Pay to Employee $100.67
Employer Bonus to Pay Health Ins.$131.00
Pays: Worker’s Comp. @ 2.0%$2.62
SUI @ 2.5%$3.28
State ETT & FUTA @ 0.2%$0.26
Social Security @ 6.2%$8.12
Medicare @ 1.45%$1.90
Total Extra Paid$16.18
Net Cost to Employer $147.18

Scenario 2: Employer Pays for Health Insurance

Employer: Payment for Health Insurance$100.00
Pays: Worker’s Comp. @ 2.0%$ 0
SUI @ 2.5%$ 0
State ETT & FUTA @ 0.2%$ 0
Social Security @ 6.2%$ 0
Medicare @ 1.45%$ 0
Total Extra Paid$ 0
Net Benefit to the Employee:  Full Health Insurance Plan
Employee: Cost of Health Insurance$100.00
Pays: Federal Income Tax @ 13%$ 0
State Income Tax @ 2%$ 0
State Disability Ins. @ 0.5%$ 0
Social Security @ 6.2%$ 0
Medicare @ 1.45%$ 0
Total Extra Paid$ 0
Net Benefit to the Employee:  Full Health Insurance Plan

 

Get a California Group Health Insurance Quote.