There’s good news for businesses with the rollout of the Affordable Care Act (ACA). Certain small businesses may be eligible for a Small Business Health Care Tax Credit, which will help employers meet the cost of covering your employees’ health care premiums. Are you eligible for the tax credit? Let’s find out.
Basic Eligibility Requirements
If you can answer yes to the following questions, you probably qualify for the Small Business Health Care Tax Credit. Read through and see if you qualify.
1. Do you have fewer than 25 full-time equivalent (FTE) employees?
2. Do you pay an average wage of less than $50,000 per year?
3. Do you pay at least half of your employee health insurance premiums?
What exactly is the Small Business Health Care Tax Credit?
Eligible employers must buy their health insurance through the Small Business Health Options Program (SHOP). Starting in 2014, the maximum credit you can receive is 50 percent of premiums for small business employers or 35 percent of premiums for small tax-exempt employers. Eligible employers can take advantage of this tax credit for two consecutive taxable years; after this period they will be exempt.
Employers can also claim a maximum of 35 percent of premiums for small businesses or 25 percent of premiums for small tax-exempt businesses for the tax years of 2010 through 2013. Regardless of the tax year you are claiming in, the exact percentage that you may receive depends on your individual business situation. The amount is calculated on a sliding scale; the smaller your business, the larger your credit.
What if I didn’t owe taxes during the year?
The tax credit can be carried back or forward to be applied to other tax years. Some businesses can even claim a business expense deduction for the premiums in excess of the credit. If you are a small tax-exempt employer, you may be able to receive the credit as a refund.
How can I claim the credit?
Form 8941, Credit for Small Employer Health Insurance Premiums, will assist you in calculating your eligible credit. Businesses should then be sure to include the amount as part of the general business credit on their income tax return. If you don’t normally file this form, you must do so to claim the credit. Note that eligible businesses who forget to claim the credit may be able to file an amended tax return.