Save Big This Tax season with SIMRP- Here’s How it Works for You and Your Business

Tax Day may come once a year, but smart tax planning is a year-round opportunity — especially when it comes to how you offer health benefits.

For most small businesses, offering traditional group health insurance is seen as a must-have, but it often comes with unnecessary tax burdens and high out-of-pocket costs. The Specialized Individual Medical Reimbursement Plan (SIMRP) changes that. Not only does it lower costs and boost flexibility, but it also brings significant tax advantages — for both employers and employees.

Let’s break down how the SIMRP compares to traditional health benefits when it comes to tax-time impact.

For Employers: Cut Payroll Taxes and Unlock Net Savings

With traditional group health plans, employers shoulder a hefty monthly premium — often thousands of dollars — with limited tax strategy benefits. Enter SIMRP. SIMRP works by structuring individual health insurance premiums as pre-tax reimbursements, often using a Section 125 Cafeteria Plan. Here’s how this impacts your taxes:

Reduced Payroll Taxes

Pre-tax deductions lower your total taxable payroll, which means you pay less in FICA, FUTA, and Medicare taxes.

Predictable Budgeting

Instead of fluctuating premiums, you define maximum monthly reimbursement amounts — making year-round tax forecasting and budgeting simpler.

Net Employer Savings

Businesses typically see $500–$700 in net annual savings per employee — not including additional soft-dollar savings from reduced HR burden and plan flexibility.

No End-of-Year Surprises

Because SIMRP relies on pre-tax contributions, it helps employers avoid taxable wage increases tied to traditional raises or taxable stipends. That’s a win when you're reconciling your books for the year.

For Employees: Bigger Paychecks, Lower Taxable Income

Employees often worry about how pre-tax deductions will affect their take-home pay or tax filing. But here’s the truth: SIMRP puts more money back in their pocket — without the hidden tax traps.

Lower Taxable Income

With a Section 125 plan in place, employees’ insurance premiums are deducted before income taxes are calculated — reducing federal income tax, FICA, and Medicare taxes.

Increased Take-Home Pay

Since health expenses are pulled pre-tax, employees can increase their net pay without sacrificing their health coverage.

No 1095-C Complications

Because employees are purchasing individual plans through the ACA marketplace, they maintain access to premium tax credits (when eligible). They get the same IRS Form 1095-A they’re used to, and it integrates smoothly into their year-end tax return.

Simpler Tax Filing

Employees don’t get taxed on the SIMRP reimbursements. As long as the employer follows IRS guidelines, these reimbursements are tax-free — no messy reconciliation or amended returns required.

The Bottom Line: Better Benefits, Smarter Taxes

A SIMRP isn't just a health plan alternative — it’s a strategic tax tool for small businesses and their employees.

For employers, it means lower payroll tax liabilities, predictable budgeting, and year-round savings that show up on Tax Day.

For employees, it means bigger paychecks, reduced taxable income, and affordable, portable coverage — without the headache.

So when Tax Day 2025 rolls around, ask yourself:

Is your health benefits plan helping you save — or just costing you more?