Small Business Health Insurance Tax Credit

StethscopeOn Thursday, June 28, 2012, the Supreme Court upheld the individual mandate in the Affordable Care Act. This means that small businesses will continue be offered a tax credit of up to 35% (or up to 25% for non-profits) to help offset the cost of providing insurance to their employees that began in 2010. Beginning in 2014, that rate will increase to 50% and 35%, respectively. This is both a credit and a deduction meaning that because the health insurance premium payments are worth more than the credit, some eligible businesses will be able to deduct the amount by which the premium payments exceed the credit.

To qualify you must:

  • Have fewer than 25 full-time equivalent employees (2 part-time employees = 1 full-time employee).
  • Pay an average of $50,000 in wages annually. For example, if you have 10 employees, and you pay them $600,000 total, then you would qualify because you pay an average annual wage of $60,000 ($600,000/10 employees = an average wage of $60,000). Even if Steve makes $33,000, Diane makes $45,000, Carol makes $41,000, and so on for a total of $600,000.
  • Provide health insurance to your employees, and cover at least 50% of the cost.

To determine how much you are eligible to receive from this credit, use Form 8941, Credit for Small Employer Health Insurance Premiums. Small businesses will claim this credit on their tax returns as part of their general business credits; non-profits will include the amount on line 44f of Form 990-T, Exempt Organization Business Income Tax Return.

H&S Companies will publish tips and updates regarding the Affordable Care Act each week, so check back often. If you have any questions, please contact an H&S professional today.

Links + Sources
What You Need to Know About the Small Business Health Care Tax Credit
Small Employer Tax Credits