Hence, the tax benefit to most C-Corps of paying premiums to a captive insurance company making an 831(b) election will be reduced. Captive Insurance Tax Benefits. The company paying the premiums receives a tax deduction, and the captive insurance company receiving the premiums receives the first $2.2 million tax-free. Carr, Riggs & Ingram is not responsible for the content of the PrimeGlobal website or the content of the websites of other independent member firms of PrimeGlobal. Captive insurance is a risk management tool with tax benefit and increased company Cash Flow. However, certain qualifying insurance companies may elect to be taxed only on taxable investment income.Though captive structures have existed for many years, activity in the tax court since 2016 has enabled us to determine what the IRS believes to be a well- functioning captive program. Within another three years, the number of captives exceeded 2,200, and the annual premiums rose above $7 billion.

Sign up for our Newsletter: Group captive insurance formed by a group of companies to take insurance … If the claims against the insurance company are managed properly, the reserves will accumulate much quicker and there will be a more profitable company. They can accrue tax deductible reserves for unpaid claims, whether known or estimated. A captive must be licensed as an insurance company through a state or foreign jurisdiction and satisfy certain requirements for the premiums to be deductible as insurance for federal tax purposes. Utilizing captive programs enables businesses to manage these risks while also taking advantage of tax benefits. Utilizing captive programs enables businesses to manage these risks while also taking advantage of tax benefits. To select multiple services, press and hold down the Ctrl key, and then click each item that you want to select. Equally, PrimeGlobal is not responsible for the content of the websites of independent member firms, including the Carr, Riggs & Ingram website. Once licensed, the Captive functions just as most insurance companies do.

Copyright 2020 Carr, Riggs & Ingram, LLC | All Rights Reserved | You are now leaving the Carr, Riggs & Ingram website. Captive insurance tax benefits under IRC 831(b) have been a proven strategy for improving cash flow for many mid-market businesses. More profits, in turn, could result in greater gain for the shareholder. A Captive insurance company is a company created to insure the risks of a specific business(s). The 831(b) election is currently available to companies with net or direct written premiums of no more than $2.3 million for tax years 2018 and 2019. By 1981, the number of captive insurance companies had reached 1,400, and it grew to 1,600 by 1983.

Assuming that the captive meets the requirements, its taxable income is typically based on underwriting income with some required adjustments for tax purposes. The disadvantages of funding employee benefits risks through a captive insurer are similar to those of using captive insurance for property or casualty exposures. Businesses use captive insurance companies as a risk management tool. However, C Corporation profits are subject to double taxation when dividends are paid out to owners / shareholders, so the tax benefits of 831(b) captives combined with the right Captive Exit Strategies are still substantial. All Rights Reserved. A captive insurance company (or “captive”) is a licensed insurer generally established to meet the risk management needs of a specific company or group of companies. Utilizing captives to transfer risk can provide a residual benefit of significant reductions in effective tax rates on insurance activity.In addition, smaller captives can make a tax election (under IRC 831(b)) to be taxed only on their taxable investment income. For example, plans seeking United States Department of Labor (DOL) approval will be required to use a fronting insurer. Tax Benefits – Insurance companies are provided a special tax treatment. A captive must satisfy the following criteria to qualify as an insurance company for federal tax purposes:Captive insurance companies are usually taxed on underwriting income after required adjustments for tax purposes. Depending on the structure of the Captive, the income will be taxed in various ways during the wealth accumulation phase (as well as the payout phase) to the Captive owner.If your company pays insurance premiums to the Captive insurance company, it is generally tax deductible for your business – but the receipt of premium income is tax free to the Captive. It can sell insurance coverage (but generally such sales are only to its owners), receive premium dollars and invest them to pay claims and, when needed, approach the reinsurance market to purchase reinsurance to cover losses.If the insurance claims are low, the Captive will, over time, accumulate significant money.