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

By Caron Beesley Published: April 08, 2013

One 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.


Category: Taxes

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