Are you a small employer with twenty-five or fewer full time employees, pays those employees an average of less than $50,000 per year and pays at least half of your employees’ health Insurance premiums? If so, this credit may benefit you. Since 2010, the Small Business Health Care Credit has been available to for-profit employers at the maximum rate of 35% of health insurance premiums paid and 25% of premiums for tax-exempt organizations pending all of the requirements were met. However, for tax year 2014, significant changes have been made to the credit. Moving forward, the maximum credit increases to 50% of the premiums paid for small business employers and 35% for tax-exempt organizations. The same number of employee and wage requirements apply, but now in order to be eligible, employers must pay the premiums on behalf of employees enrolled in a qualified plan offered through a Small Business Health Options Program (SHOP), which is a feature of the health benefit exchange or “marketplaces”. The credit will now only be available to employers for two consecutive taxable years.
For-profit employers will claim the credit as a general business credit, which can be carried back or forward to other tax years. Employers can claim a business expense deduction for premiums in excess of the tax credit. For tax-exempt employers, the tax credit is a refundable credit. Even if an employer has no taxable income, they may receive a refund. This calculation is based on factors including the employer’s income tax withholding and both the employer’s and the employees’ Medicare tax withholding. For both for-profit and tax-exempt employers, the credit will be calculated on Form 8941 and attached to the respective Federal Income Tax Return.
If you have questions regarding your business’s eligibility, please contact our office.