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Tax Rate Calculation on Gross Premiums Attributable to Qualified Health Plans for Tax Year 2023
NOTICE OF TAX RATE CALCULATION ON GROSS PREMIUMS ATTRIBUTABLE TO QUALIFIED HEALTH PLANS FOR TAX YEAR 2023
Issued: September 27, 2023
Under the Michigan Income Tax Act (MITA), insurance companies pay tax on gross direct premiums instead of the corporate income tax. The premiums tax is calculated at 1.25% of gross direct premiums written on property or risk located in Michigan. MCL 206.635(2). However, Public Act 222 of 2018 amended the MITA to reduce the tax rate on premiums attributable to qualified health policies written on risk located or residing in this state. The following types of policies are qualified health policies: 1) comprehensive major medical, regardless of whether the policy is eligible for a health savings account or purchased on the health insurance marketplace, 2) student, 3) children's health insurance program, 4) Medicaid, 5) employer comprehensive, regardless of whether the policy is eligible for a health savings account or purchased on the health insurance marketplace, and 6) multiple employer associations or trusts and any other employer associations and trusts. MCL 206.635(9).
For tax years beginning January 1, 2019, premiums attributable to qualified health policies were taxed at 0.95%. MCL 206.635(2). For tax years after 2019, the rate for premiums attributable to qualified health insurance policies is subject to change annually based on a statutory formula intended to represent the amount saved by all insurance companies due to the reduced rate but capped at an annual savings of $18,000,000. The Department must compute the rate annually by October 1 of each year. MCL 206.635(7). If the savings for any year exceeds the $18,000,000 cap, the reduced tax rate for premiums attributable to qualified health policies will be increased to cover the previous year's excess.
For tax year 2023, the Department has calculated the rate for gross premiums attributable to qualified health policies as 0.9325%.