Late last week, Senators Christopher Bond, R-Mo., and Tim Johnson, D-S.D., introduced S. 735, “Small Insurance Company Inflation Adjustment Act,” to amend the Internal Revenue Code of 1986 to clarify the tax exemption for small property and casualty insurance companies. This legislation would reportedly serve to increase the tax-exempt and net investment income election levels for small insurance companies to account for inflation since 1986.
Following the introduction of S. 735, Monte Ward, Federal Affairs vice-president of the National Association of Mutual Insurance Companies (NAMIC), issued the following:
“We are very pleased to see bipartisan support for this bill. Since the 106th Congress, we have supported legislation that would raise both the tax-exempt and investment income election levels for mutual insurance companies. Because small, mutual property and casualty insurance companies have such limited financial resources, all of their assets must be preserved for claims paying to ensure their important niche market in America. This important piece of legislation will go a long way in helping many of the small property and casualty insurance companies throughout the country.”
S. 735 would serve to both increase the tax-exempt level for insurance companies from $350,000 to $575,000 and the income election level from $1.2 million to $1.971 million. It would also index these levels to a cost-of-living adjustment for future years.
Under the current Internal Revenue Code, an insurance company with up to $350,000 in direct or net written premium, whichever is greater, is tax-exempt. Additionally, insurance companies with direct or net written premiums, whichever is greater, exceeding $350,000 but not exceeding $1,200,000, may elect to be taxed on their net investment income. The tax-exempt and investment income election level amounts have not been adjusted for inflation since 1986.
Of NAMIC’s over 1,300 member companies, over 660 have less than $1.971 million in direct written premium, and thus would either be tax-exempt or qualify to elect to be taxed on the net investment income under this legislation.
“NAMIC expects the House to introduce similar legislation early next week,” Ward noted.
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