Life License Qualification Program (LLQP) Practice Exam

Which type of income is typically tax-deductible for employers providing group health insurance?

1. Employee's wages

2. Employee's health insurance premiums

3. Administrative overhead costs

4. Employee bonuses

The correct answer is: Employee's health insurance premiums

The reasoning behind the correct answer being that employee health insurance premiums are typically tax-deductible for employers relates to the tax treatment of employee benefits. In many jurisdictions, the premiums that employers pay for group health insurance on behalf of their employees can be deducted as a business expense. This deduction helps to lower the overall taxable income of the employer, effectively reducing the amount of tax they owe. Employers often provide group health insurance as part of a benefits package to attract and retain employees, and the tax-deductibility feature makes this option more financially appealing. It provides a tangible financial incentive for employers to offer health benefits, contributing to employee well-being and job satisfaction. In contrast, wages, administrative overhead costs, and bonuses may have different implications regarding tax deductions and might not provide the same level of benefits that are associated directly with employee health insurance premiums.