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Tax Season Savings! Reminder: How to Claim the Small Business Health Care Tax Credit

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Tax Season Savings! Reminder: How to Claim the Small Business Health Care Tax Credit

By Caron_Beesley, Contributor
Published: April 8, 2013

IRS Form 8941One of the ways in which the Affordable Care Act helps bring down costs for small employers is through the tax credit available to eligible small businesses that provide health care insurance to their employees. The credit significantly offsets the cost of providing insurance and with the 2012 tax filing deadline fast approaching, you don’t want to let this valuable tax break pass you by.  Here’s what you need to know about eligibility and how to claim the credit:

What is the Small Business Health Care Tax Credit?

Currently the maximum tax credit is 35 percent for small business employers and 25 percent for small tax-exempt employers (e.g., charities and non-profits). This percentage applies to tax years 2010 through 2013. Even better – in 2014 the credit will increase to 50 percent for eligible small business employers and to 35 percent for tax-exempt employers through the new Small Business Health Options Program (SHOP) Marketplaces (also known as Exchanges).

The credit can also be carried back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

So what does this mean for you? The IRS website offers some examples of how the credit works in a variety of circumstances.

Who Qualifies for the Small Business Health Care Tax Credit?

To qualify for the credit, you must meet the following criteria:

  • You must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees
  • You must have fewer than 25 full-time equivalent employees (two half-time workers count as one full-timer)
  • Those employees must have average wages of less than $50,000 a year

To help determine whether you qualify for the credit, follow this step-by-step guide from the IRS.

How to Claim the Credit

First you’ll need to calculate the credit, use IRS Form 8941 to help you with this step. Then include the credit amount as part of the general business credit on your income tax return. Remember, you may be able to carry the credit back or forward.  Talk to your tax advisor for more assistance.


About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley


First you’ll need to calculate the credit, use IRS Form 8941 Download Adobe Reader to read this link content to help you with this step. Then include the credit amount as part of the general business credit on your income tax return. Remember, you may be able to carry the credit back or forward. Talk to your tax advisor for more assistance.
in the past, i don't know how to claim the credit, after reading this post, i know what i must do and find the help from the tax advisor.thank you.
Thanks for such a well-researched post Carol. I won't hesitate to admit that filing tax returns is quite a hectic task for me and I also don't like to get it done by a professional attorney. Hope these effective tips and information help me out from now on. Professional website :This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.
Is there any way for a non-profit (tax exempt) organization to claim the credit if they are NOT required to file 990T? Can the credit be applied to employer taxes such as FICA or Unemployment? Just thought I would ask. Thanks.
For your first question you should consult a tax attorney.  For your second question, the credit only applies to healthcare insurance, not employer taxes.
The above criteria states that the average wage per employee is $50,000 or less. However, for 2012, the average wage is $25,000 or less according to Form 8941.
Thanks for your comment, if you take a look at Form 1829 line item 3, you'll see it asks you to enter wages, and it clearly states the $50,000 or less threshold: "Average annual wages you paid for the tax year (see instructions). If you entered $50,000 or more, skip lines 4 through 11 and enter -0- on line 12" You can also refer to the IRS instructions here which clearly mention the $50,000 number: http://www.irs.gov/instructions/i8941/ar02.html#d0e62 Hope this helps clarify!
Thanks for tackling the Affordable Care Act, Caron. I’ve received more emails when I write about ACA than most other subjects. When my readers call it “Obama Care,” I know which side of the debate they are on. History will tell if its a four letter word or President Barack Obama’s most outstanding legacy. Either way, thanks for sticking your neck out. (-: http://www.heraldtribune.com/article/20130304/COLUMNIST/130309888/2267/BUSINESS?Title=Businesses-can-get-help-with-new-health-rules http://www.heraldtribune.com/article/20130311/COLUMNIST/130309583/2267/BUSINESS?Title=Help-to-survive-onset-of-Affordable-Care-Act Jerry Jerry Chautin is a volunteer with SCORE.org, a nonprofit SBA resource partner offering free business advice and mentoring. He is SBA’s 2006 national “Journalist of the Year” and a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and commercial real estate strategies for several publications and financial organizations nationwide. Contact him with your questions and stories at jkchautin@aol.com and follow him on Twitter, www.twitter.com/JerryChautin.
Thank you so much for this post. I get extremely stressed out each time tax season comes. It takes me so much time and effort to do my taxes in a correct way. I am not that good at math, so sometimes I think that it is way better to actually hire a professional who will prepare my taxes without a constant need to redo some details, but unfortunately I cannot afford this. This article is very much informative and important for people like myself. Keep us on track with the latest possible changes!

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