The first adjustment to the premium limit for 831(b) electing captives in the United States has been triggered, taking it to $2.3m.
When the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) was passed in December 2015, it increased the annual premium limit under Section 831(b) by $1m to $2.2m, effective from January 2017.
It also included a provision that meant, in future, the annual premium limit would be indexed for inflation in $50,000 increments. The premiums against which the $2.2m is measured are the greater of the direct written premiums or net written premiums.
The Internal Revenue Service has now announced its 2018 tax year inflation adjustments, and it includes comments on the 831(b) tax election for small insurance companies.
“For taxable years beginning in 2018… the amount of the limit on net written premiums or direct written premiums (whichever is greater) is $2,300,000 to elect the alternative tax for certain small companies under § 831(b)(1) to be taxed only on taxable investment income.”
The increase by $100,000 is modest in comparison to the $1m jump 12 months ago, but should add further value to those smaller captives close to the existing premium limit.