Davidson Pargman

Employers can’t control health care costs, but they can address them

November 13, 2025

Stethoscope on the background of dollar bills. The concept of paid medicine. Medical costs. Healthcare payment concept.

Perhaps the scariest thing employers encountered this Halloween season wasn’t an ornate costume or over-the-top yard display. It was the grim realization that health care costs will likely rise substantially next year, and there’s not much you can do about it.

If your organization sponsors a calendar-year health insurance plan, you’re probably already in open enrollment for 2026 or will be soon. But just because you can’t control rising health care expenses in the coming months doesn’t mean you can’t address them in future versions of your plan and with employees.

How high?

In September 2025, global consultancy Willis Towers Watson released the results of its 2025 Best Practices in Healthcare Survey. The company analyzed responses from 417 employers, representing about 5 million employees. Among the key findings were that U.S. employers project their health care costs to increase by 9.1% in 2026 before plan changes (up from 8.1% in 2025 and 7% in 2024). Even with plan changes, respondents still foresee an 8% increase (up from 7% in 2025 and 6% in 2024).

The survey identified three major factors driving the price escalation:

Pharmacy costs, primarily specialty pharmaceuticals and GLP-1 medications,
High-cost claimants, and
Chronic conditions — especially musculoskeletal disorders and cancers.

For years, employers have largely shifted costs to employees to mitigate the higher price tag of health care coverage. However, according to the survey, 59% of respondents plan to implement “broader cost-savings actions” over the next three years (up from 46% over the previous three years).

What can you do?

The survey described some of the actions that help maintain affordability for employees. For example, 41% of respondents are using nontraditional plan designs that focus on:

Alternative or select providers,
Price or cost transparency,
Enhanced navigation,
Expanded use of participant-facing technology, and
Advanced or high-performance primary care.

These features can push employees to use more cost-effective providers while better informing and educating them about managing their health care costs. The survey identifies other potentially helpful strategies, too, including:

Evaluating vendor performance. Almost half of respondents (46%) said they’re taking a hard look at their vendors to evaluate return on investment. This generally involves identifying key performance indicators and benchmarking them against established standards.

Bidding out your plan. When in doubt, shop around. More than a third of respondents (36%) said they’ve issued a request for proposal to carriers for a new health insurance plan. Although you’ll need to put serious effort and resources into such a process, you might find a better deal.

Conducting medical claims audits. Higher health care expenses make every error or inefficiency more costly. One third of respondents (33%) are auditing their medical claims to catch overpayments and unnecessary costs.

Reviewing prior authorizations or evaluating qualifying payments for out-of-network services. Similar to claims audits, these reviews or evaluations can verify medical necessity, curb improper payments and fraud, control costs, and improve plan performance. According to the survey, 22% of respondents have done them in the past and 34% plan to do them in the near future.

Who can help?

We’d be remiss not to mention another critical step in addressing rising health plan costs: being transparent with your employees. Health care benefits are essential to their well-being, and they deserve to understand what’s driving rates higher. During open enrollment and throughout the year, communicate what you’re doing to manage costs while preserving quality of care.

Contact us for guidance on analyzing the cost efficiency of your health insurance plan. We can help you identify strategies to optimize spending that support both your organization and its workforce.

Is an HDHP plus an HSA a financially smart health care option for you?

November 12, 2025

Health care costs continue to increase. Pairing a high-deductible health plan (HDHP) with a Health Savings Account (HSA) can help. Insurance premiums will be lower because of the high deductible. And the HSA provides a tax-advantaged way to fund the deductible and other medical expenses.

5 HSA tax benefits

HSAs offer both current and future tax savings:

1. Your contributions are pretax or tax deductible. This saves you tax in the year contributions are made.

2. Contributions your employer makes aren’t included in your taxable income. Again, you save tax in the current year.

3. Earnings on the HSA funds aren’t taxed as long as they remain in the account. HSAs can bear interest or be invested and grow on a tax-deferred basis, similar to a traditional IRA.

4. Distributions to pay qualified medical expenses aren’t taxed. This means you benefit from permanent tax savings. (If funds are withdrawn from the HSA for other reasons, the distribution is taxable. Generally, a 20% penalty will also apply.)

5. Distributions after age 65 are penalty-free even if not used for medical expenses. But they’re still taxable. So, HSAs can help fund retirement, again, similar to a traditional IRA.

Annual limits

You can contribute to an HSA only if you have an HDHP. For 2026, an HDHP is health insurance with an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage. (These amounts increased from $1,650 and $3,300, respectively, for 2025.) Additionally, the 2026 out-of-pocket expenses you’re required to pay for covered benefits can’t exceed $8,500 for self-only coverage or $17,000 for family coverage (up from $8,300 and $16,600, respectively, for 2025).

Beginning in 2026, the definition of HDHP will be expanded. It also will include Bronze and Catastrophic plans available on state and federal insurance exchanges under the Affordable Care Act.

For self-only coverage, the 2026 HSA contribution limit is $4,400. For family coverage, it’s $8,750. (These amounts are up from $4,300 and $8,550, respectively, for 2025.) If you’re age 55 or older by year-end, you may make additional “catch-up” contributions of up to $1,000.

The annual contribution limit is reduced if you have an HDHP for only part of the year or go on Medicare at some point during the year. But you can still take tax-free distributions from your HSA for qualified medical expenses.

Determining your best option

The combination of an HDHP and an HSA can be financially smart, particularly for healthy individuals who don’t currently have many medical expenses. Such individuals can reduce premium costs today and potentially build up substantial HSA funds to use in the future, such as to cover the costs of a major health issue or to supplement their retirement plans. But an HDHP-HSA pairing isn’t the best option for everyone. Contact us to discuss the tax and financial aspects of funding your health care.

Review your business expenses before year end

November 11, 2025

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Now is a good time to review your business’s expenses for deductibility. Accelerating deductible expenses into this year generally will reduce 2025 taxes and might even provide permanent tax savings. Also consider the impact of the One Big Beautiful Bill Act (OBBBA). It makes permanent or revises some Tax Cuts and Jobs Act (TCJA) provisions that reduced or eliminated certain deductions.

“Ordinary and necessary” business expenses

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Section 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It doesn’t have to be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

OBBBA and TCJA changes

Here are some types of business expenses whose deductibility is affected by OBBBA or TCJA provisions:

Entertainment. The TCJA eliminated most deductions for entertainment expenses beginning in 2018. However, entertainment expenses for employee parties are still deductible if certain requirements are met. For example, the entire staff must be invited — not just management. The OBBBA didn’t change these rules.

Meals. Both the TCJA and the OBBBA retained the pre-2018 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? They’re still 50% deductible, as long as they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Through 2025, the TCJA also expanded the 50% deduction rule to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. (Previously, such meals were 100% deductible.) The deduction was scheduled to be eliminated after 2025. The OBBBA generally retains this deduction’s 2026 elimination, with some limited exceptions that will qualify for a 100% deduction. But meal expenses generally can be 100% deducted if the meals are sold to employees.

Transportation. Transportation expenses for business travel are still 100% deductible, provided they meet the applicable rules. But the TCJA permanently eliminated most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. However, those benefits are still tax-free to recipient employees, up to applicable limits. The OBBBA doesn’t change these rules.

Before the TCJA, employees could also exclude from taxable income qualified bicycle commuting reimbursements, and this break was scheduled to return in 2026. However, the OBBBA permanently eliminates it.

Employee business expenses

The TCJA suspended through 2025 employee deductions for unreimbursed employee business expenses — previously treated as miscellaneous itemized deductions. The OBBBA has permanently eliminated this deduction.

Businesses that don’t already have an employee reimbursement plan for these expenses may want to consider implementing one for 2026. As long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Planning for 2025 and 2026

Understanding exactly what’s deductible and what’s not isn’t easy. We can review your current expenses and help determine whether accelerating expenses into 2025 makes sense for your business. Contact us to discuss year-end tax planning and to start strategizing for 2026.

The 2025 SALT deduction cap increase might save you substantial taxes

November 6, 2025

If you pay more than $10,000 in state and local taxes (SALT), a provision of the One Big Beautiful Bill Act (OBBBA) could significantly reduce your 2025 federal income tax liability. However, you need to be aware of income-based limits, and you may need to take steps before year end to maximize your deduction.

Higher deduction limit

Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. Historically, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values), as well as those who owned both a primary residence and one or more vacation homes.

Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) limited the deduction to $10,000 ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025.

Rather than letting the $10,000 cap expire or immediately making it permanent, the OBBBA temporarily quadruples the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately), with 1% increases each subsequent year. Then in 2030, the OBBBA reinstates the $10,000 cap.

The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional $10,500 in taxes [35% × ($40,000 − $10,000)].

Income-based reduction

While the higher limit is in place, it’s reduced for taxpayers with incomes above a certain level. The allowable deduction drops by 30% of the amount by which modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029.

Here’s how the earlier example would be different if the taxpayer’s MAGI exceeded the threshold: Let’s say MAGI is $550,000, which is $50,000 over the 2025 threshold. The cap would be reduced by $15,000 (30% × $50,000), leaving a maximum SALT deduction of $25,000 ($40,000 − $15,000). Even reduced, that’s more than twice what would be permitted under the $10,000 cap. The reduced deduction would still save an additional $5,250 in taxes [35% × ($25,000 − $10,000) compared to when the $10,000 cap applied.

Itemizing vs. the standard deduction

The SALT deduction is available only to taxpayers who itemize their deductions. The TCJA nearly doubled the standard deduction. As a result of that change and the $10,000 SALT cap, the number of taxpayers who itemize dropped substantially. And, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for head of household filers, and $31,500 for married couples filing jointly.

But the higher SALT cap might make it worthwhile for some taxpayers who’ve been claiming the standard deduction post-TCJA to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions (generally, certain medical and dental expenses, home mortgage interest, qualified casualty losses, and charitable contributions) exceeds the applicable standard deduction, the taxpayer will save more tax by itemizing.

Year-end strategies

Here are two strategies that might help you maximize your 2025 SALT deduction:

1. Reduce your MAGI. If it’s nearing the threshold that would reduce your deduction or already over it, you can take steps to stay out of the danger zone. For example, you can make or increase pretax retirement plan and Health Savings Account contributions. Likewise, you can avoid moves that increase your MAGI, like Roth IRA conversions, nonrequired traditional retirement plan distributions and asset sales that result in large capital gains.

2. Accelerate property tax deductions. If your SALT expenses are less than $40,000 and your MAGI is below the reduction threshold for 2025, for example, you might prepay your 2026 property tax bill this year. (This assumes the amount has been assessed — you can’t deduct a prepayment based only on your estimate.)

Plan carefully

In your SALT planning, also be aware that SALT expenses aren’t deductible for purposes of the alternative minimum tax (AMT). A large SALT deduction could have the unintended effect of triggering the AMT, particularly after 2025.

Under the right circumstances, the increase to the SALT deduction cap can be a valuable tax saver. But careful planning is essential. Contact us for assistance with maximizing your SALT deduction and other year-end tax planning strategies.

What’s your organization’s EVP?

November 5, 2025

Imagine you’re walking down the street one day and someone stops and asks you about your organization’s employee value proposition (EVP). How would you respond? Perhaps you’d be a bit bewildered and need the person to define the term. Or maybe you’d know what they meant but have a little trouble articulating your EVP. Either response is completely understandable. In fact, according to a recent survey, there are plenty of employers in both situations.

Surveys say

An EVP is the distinctive combination of compensation, benefits, rewards, opportunities and experiences that an employer offers employees in exchange for their skills, capabilities and contributions. Every organization has one, but you’d hardly be alone if you haven’t documented yours and put it into action yet. A report released in late 2024 by McLean & Company, an HR research and advisory firm, found that only 22% of the organizations it surveyed had an EVP.

Another survey from last year, this one by business research giant Gartner, found that employers were increasingly investing in EVPs but struggling to communicate with workers about them. The survey of more than 1,300 employees found that only 16% of respondents “reported knowing what makes up their organization’s EVP.” And 75% of HR leaders who responded to the survey admitted to falling short of communicating effectively about their organization’s EVP.

How to get started

The numbers make a clear case: Employers that take the time to define and communicate their EVPs gain a measurable advantage. If your organization has yet to formally create one, a good way to begin is by gathering employee feedback through surveys, focus groups or one-on-one interviews. Learn what staff members value most about working for your organization and what they believe you could do better. Look for patterns in their responses about culture, leadership, compensation and benefits, recognition, and growth opportunities. Seek out gaps between your perception and theirs.

Next, evaluate how your organization stacks up against competitors. Identify what makes other similar employers attractive to employees in your industry and where your advantages over them lie. Determine how to highlight your organization’s distinctive strengths — perhaps more flexible scheduling, a highly supportive culture, more career development opportunities or stronger community involvement.

As you write your EVP, keep it authentic. Don’t embellish or “promise the world.” Rather, pinpoint and articulate the true positives of the employee experience at your organization. Expect to revise your first draft. Working with your leadership team and professional advisors, refine your EVP into a clear, compelling message that will resonate positively with current and prospective staff members.

When you believe you’ve got it right, share your EVP with staff. Consider distributing the final language via email with an explanation of what it’s all about. Then, perhaps ask supervisors to discuss the EVP further with their teams in meetings or one-on-one conversations.

Many channels

As indicated by the Gartner survey, having an EVP isn’t enough. You’ve got to leverage it regularly and consistently. So, whether you’re just launching an EVP or already have one, communicate it via as many channels as possible. Include your EVP in job descriptions, online job postings, employment interviews, onboarding activities, internal emails, intranet posts and organizational meetings (such as “town hall” events).

Your people managers can once again play a pivotal role. Train and encourage them to keep employees connected to your EVP. They should raise and reiterate key points during team meetings, mentoring sessions and performance reviews.

Finally, think of your EVP as a living document. Work with your leadership team and supervisors to review and adjust it as necessary to reflect changes in your workforce, culture and strategic goals.

Valuable assets

When it comes to your EVP, recall that old expression, “If you’ve got it, flaunt it.” Your organization likely has more than a few things to brag about as an employer. Each of those positive attributes is an asset you can wield to your advantage in hiring and retention. Contact us for help assessing and managing the employment costs behind your EVP so it supports your broader strategic goals.

Should your business maximize deductions for real estate improvements now or spread them out?

November 4, 2025

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Commercial real estate usually must be depreciated over 39 years. But certain real estate improvements — specifically, qualified improvement property (QIP) — are eligible for accelerated depreciation and can even be fully deducted immediately. While maximizing first-year depreciation is often beneficial, it’s not always the best tax move.

QIP defined

QIP includes any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building was placed in service. But expenditures attributable to the enlargement of the building, any elevator or escalator, or the building’s internal structural framework don’t count as QIP.

QIP has a 15-year depreciation period. It’s also eligible for bonus depreciation and Section 179 expensing.

100% bonus depreciation

Additional first-year bonus depreciation is available for eligible assets, including QIP. The One Big Beautiful Bill Act (OBBBA), signed into law in July, increases bonus depreciation to 100% for assets acquired and placed in service after Jan. 19, 2025. It also makes 100% bonus depreciation permanent.

But be aware that bonus depreciation is only 40% for assets acquired Jan. 1, 2025, through Jan. 19, 2025, and placed in service any time in 2025. So, if your objective is to maximize first-year deductions on QIP acquired during that period, you’d claim the Sec. 179 deduction first. (See below.) If you max out on that, then you’d claim 40% first-year bonus depreciation.

In some cases, a business may not be eligible for bonus depreciation. Examples include real estate businesses that elect to deduct 100% of their business interest expense and dealerships with floor-plan financing — if they have average annual gross receipts exceeding $31 million for the previous three tax years.

Sec. 179 expensing

Similar to 100% bonus depreciation, Sec. 179 expensing allows you to immediately deduct (rather than depreciate over a number of years) the cost of purchasing eligible assets, including QIP. But the break is subject to annual dollar limits, which the OBBBA increases.

For qualifying assets placed in service in tax years beginning in 2025, the maximum allowable Section 179 depreciation deduction is $2.5 million (up from $1.25 million before the OBBBA). In addition, the break begins to phase out dollar-for-dollar when asset acquisitions for the year exceed $4 million (up from $3.13 million before the OBBBA). These amounts will continue to be annually adjusted for inflation after 2025.

Another restriction is that you can claim Sec. 179 expensing only to offset net income. The deduction can’t reduce net income below zero to create an overall business tax loss.

One advantage over bonus depreciation is that, for Sec. 179 expensing purposes, QIP also includes HVAC systems, nonresidential building roofs, fire protection and alarm systems, and security systems that are placed in service after the building is first placed in service.

Spreading out QIP depreciation

There are a few reasons why it may be more beneficial to spread out QIP depreciation over 15 years rather than claiming large first-year depreciation deductions:

Bonus depreciation can trigger the excess business loss rule. Although you can claim 100% first-year bonus depreciation even if it will create a tax loss, you could inadvertently trigger the excess business loss rule.

The rule limits deductions for current-year business losses incurred by noncorporate taxpayers: Such losses generally can offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains, only up to the applicable limit. For 2025, the limit is $313,000 ($626,000 for a married joint filer).

As a result, your 100% first-year bonus depreciation deduction might effectively be limited by the excess business loss rule. However, any excess business loss is carried over to the following tax year and can then be deducted under the rules for net operating loss carryforwards.

Large first-year deductions can result in higher-taxed gain when QIP is sold. First-year bonus depreciation and Sec. 179 deductions claimed for QIP can create depreciation recapture that’s taxed at your ordinary income rate when the QIP is sold. Under rates made permanent by the OBBBA, the maximum individual rate on ordinary income is 37%. You may also owe the 3.8% net investment income tax (NIIT).

On the other hand, for QIP held for more than one year, gain attributable to straight-line depreciation is taxed at an individual federal rate of only 25%, plus the 3.8% NIIT if applicable.

Depreciation deductions may be worth more in the future. When you claim big first-year depreciation deductions for QIP, your depreciation deductions for future years are reduced accordingly. If you’re in a higher income tax bracket in the future or federal income tax rates go up, you’ll have effectively traded potentially more valuable future-year depreciation deductions for less-valuable first-year deductions.

Keep in mind that, while the OBBBA did “permanently” extend current rates, that only means they have no expiration date. Lawmakers could still increase rates in the future.

What’s best for you

Many factors must be considered before deciding whether to maximize QIP first-year depreciation deductions or spread out the deductions over multiple years. We can help you determine what’s best for your situation.