If an employer makes contributions to a welfare benefit fund to provide supplemental unemployment benefits for its employees, the employer may deduct the contributions as ordinary and necessary business expenses. The deduction is claimed as an employee benefit expense, not as a compensation cost.

Specific Details

The employer reduced his taxable income by $5,000 by contributing to a welfare benefit fund to provide supplemental unemployment benefits for his employees. Since the business income was taxed at the 30% tax bracket, the income reduction may decrease its income taxes by $1,500 ($5,000 x 30%).

Potential Savings

If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by contributing to a welfare benefit fund to provide supplemental unemployment benefits for your employees.