Small Business Healthcare Tax Credit
The Small Business Healthcare Tax Credit can help you save money. Through 2010 to 2013 the maximum credit is 35% of premiums paid for small business employers and 25% of premiums paid for small tax-exempt employers such as charities. This means up to 4 million small businesses that offer healthcare coverage to their employees may be eligible for a tax credit. This is a great way to differentiate yourself from the competition in procuring talent for your business. Remember, your businesses success relies on the efficiency, expertise and customer service provided by your employees.
Beginning in 2014 or later:
- the maximum credit will increase to 50% of premiums paid for small business employers and 35% of premiums paid for small tax exempt employers
- to eligible for the credit a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) marketplace
- the credit will be available to eligible employers for two consecutive years.
How to qualify
To qualify for the tax credit a small business must:
- have fewer than 25 full time employees
- pay average annual wages below $50,000 per full time employee
- contributes at least 50% of each employee’s premium
Please note that small business owners are excluded and should not be counted in the number of employees, wages, or premium contribution amount. Also, the tax credits cannot be larger than actual income tax liability.
What if you don’t owe tax during the year?
Don’t worry. You can carry the credit back or forward to other tax years. Here is where it is critical to have good tax advice and tax planning for your small business. Also, since the amount of health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. Now, this is good news. That is both a credit and a deduction for employee premium payments.
For tax-exempt organizations
A tax exempt organization is a qualified employer under the Small Business Health Options Program. But, the credit amount of the tax credit is lower and special rules apply. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. Please see the advice of a tax attorney or other qualified professional when determining your healthcare tax credit. You don’t want to miss out on such a valuable tax credit.