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While Captives.Insure is not in a position to provide tax, legal, or coverage advice, a brief outline of the potential tax elections within a captive insurance arrangement is provided below. Any tax liabilities or implications will best be answered by your current tax advisor. A captive insurance company will have a separate tax return from your personal or current operating company. Captive insurance companies are taxed as C-Corp’s by statute and typically take one of three elections for their US federal income tax:

831(a) tax election: Under this election the company pays 21% tax on the underwriting profit of the captive (premiums received less claims and operating expenses paid). Taxable income is able to be offset by claims reserves and IBNR (incurred but not reported). Investment returns are taxed at the same 21% C-Corp rate.

831(b) tax election: This election is for “small insurance companies”. For 2024 the definition for a “small insurance company is one that receives less than $2.8m during the tax year. Under this election the company pays 0% tax on the underwriting profit of the captive and pays 21% C-Corp tax on the investment income only.

C-Corp: The captive can also elect not to be taxed as an insurance company at all and would file as a normal C-Corp. Profits of the captive would then be taxed at the normal 21% tax rate.

TAXES ON PROFIT DISTRIBUTIONS

Distributions are typically taxed at the applicable long term capital gains rate. The captive’s tax advisor can discuss factors that impact this tax liability and any other ways of accessing surplus while minimizing the potential tax liability

CONCLUSION

While Captives.Insure (C.I.) does not provide tax advice directly, we work directly with tax professionals that will guide you every step of the way, ensuring your business chooses the safest, most profitable tax election possible.