Illinois Health Insurance Practice Exam

How are premiums paid by employers for group expense coverage usually treated in terms of tax implications?

1. A. Subject to employee taxation

2. B. Tax-deductible for the employer

3. C. Qualify for individual tax deductions

4. D. Tax-free with no tax consequences

The correct answer is: B. Tax-deductible for the employer

The correct answer is that premiums paid by employers for group expense coverage are typically tax-deductible for the employer. This means that when an employer pays for group health insurance, they can deduct those premiums as a business expense on their tax returns. This treatment encourages employers to offer health insurance benefits to their employees, as it reduces the overall tax burden for the business. On the other hand, the premiums are generally not subject to employee taxation at the time of payment, which is why options hinting at employee taxation or personal deductions do not apply in this situation. Therefore, focusing on the employer's ability to deduct the costs emphasizes the tax advantages associated with providing group health coverage in a business setting.