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Home arrow Resources arrow Articles arrow Small Business Health Care Tax Credit: Are you Eligible?

Small Business Health Care Tax Credit: Are you Eligible?

Health care costs are rising all the time, and it is increasingly difficult to afford health insurance coverage for your employees. Plus, health insurance costs can take a bigger bite out of the budgets of small businesses; in general, it is estimated that small businesses pay up to 18% more per employee for health insurance coverage than larger companies do. Fortunately for small business owners, the Small Business Health Care Tax Credit can help absorb some of those health insurance related costs. This is a credit designed specifically for small businesses, to make it possible for them to offer this valuable benefit to their employees. This credit was created as part of Barack Obama's Affordable Care Act to ensure that a larger portion of the American public has access to health insurance. It has been offered since 2010.

Under the current allowable credit, companies can get back as much as 35% of what they spend on health insurance for their employees. This amount will jump to 50% as of January 1, 2014 when more parts of the Affordable Care Act take effect. Whether your are eligible for this tax credit or not will depend on a number of factors. Eligible employers:

  • have fewer than 25 full-time employees.
  • have average employee wages of $50,000 or less
  • cover at least 50% of premiums for single health insurance.

In general, two part-time employees count as one full-time employee. Non-profits are eligible for the credit, as well. The credit non-profits are eligible for currently tops out at 25%, and will go up to 35% in 2014.

The credit works on a sliding scale. So, an employer with 20 employees making an average of $25,000 a year will get a lower percentage of premiums back than an employer who has 10 employees with an average salary of $20,000 a year. The amount you get back also depends on how much you pay for your employees' health insurance. For instance, if you pay $50,000 a year towards employees' insurance premiums and qualify for the full 35% credit, your company will get a credit of $17,500. There are more sample scenarios on the IRS's website that can help you figure out how the credit might work for your company.

The credit can be carried forward or back, as well, which means that it can be claimed for past or future tax years. The credit is refundable, which means that, if your credit exceeds your company's tax bill, you may be able to get cash back.

In order to claim the credit, you or your accountant will need to fill out form 8941, which is the Credit for Small Employer Health Insurance Premiums. This form is used to determine the amount of your credit. Then, include that amount as part of the general business credit when you file your taxes. If your organization is tax exempt, you can use form 990-T to claim the credit. If you are eligible for the credit this year, but have already filed, you can still file an amended return to take advantage of this valuable credit.

 
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