Taking Advantage of the Small Business Health Care Tax Credit
By Patricia Brown-Dixon, Regional Administrator, Region 7 U.S. Small Business Administration
Thanks to the Affordable Care Act, small businesses are benefitting from improved accountability and affordability in the health insurance market. As we prepare for the Small Business Health Options Program (SHOP) Marketplaces to begin open enrollment on October 1, it’s important small employers who offer health insurance to their employees to remember that you may also be eligible for a tax credit. This credit can significantly offset the cost of providing insurance by crediting a percentage of premium contributions.
As with any law, the U.S. Small Business Administration is committed to educating small business owners about the facts surrounding the Affordable Care Act to help them make an informed decision about what makes sense for their business – including whether you choose to apply for a tax credit under the law.
Through 2013, to qualify for a small business tax credit of up to 35 percent (up to 25 percent for non-profits) of your premium contributions, you must have all of these criteria:
• Fewer than 25 full-time equivalent employees
• Pay average annual wages below $50,000
• Contribute 50 percent or more toward your employees’ self-only health insurance premiums
Beginning in January 2014, this tax credit increases to 50 percent (35 percent for non-profits) and will be available to small businesses who meet the criteria listed above and who purchase coverage through the new SHOP Marketplaces on their state’s health care exchange site. This enhanced credit can be claimed for any two consecutive taxable years beginning in 2014 (or beginning in a later year.)
To determine whether qualify, the Internal Revenue Service (IRS) offers a helpful step-by-step guide you can find by visiting http://www.taxpayeradvocate.irs.gov/ and searching for the Small Business Health Care Tax Credit. If you have additional questions about the tax credit, or need assistance completing the necessary forms, call the IRS Business Help Line at 1-800-829-4933.
Once you’ve determined that you qualify for the credit, your tax professional can help guide you through the necessary steps to claim the credit:
• Even if you are a small employer who did not owe tax during the year, you may be able to carry the credit back or forward to other tax years. And if you are a tax-exempt employer, you may be eligible for a refundable credit. Note this is a federal tax credit. You may also be eligible for additional health care tax credits from your state.
• Use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate and claim the credit. It’s also important to know that eligible small employers can claim the credit and still take a business expense deduction for the remainder of their premium contributions.
The Affordable Care Act allows small employers to offer health coverage in a way that makes sense for their business and works for their bottom line, and the SBA is committed to leveraging our resources and federal partnerships to connect you with the facts and resources you need to understand the law.