As the tax filing deadline approaches, many small business owners are looking for ways to save money as they prepare to file their tax returns. Although the Affordable Care Act does not require that businesses provide health insurance, it does offer Federal tax credits for eligible small businesses that choose to provide insurance to their employees for the first time, or maintain the coverage they already have.
Small businesses can claim a larger tax benefit for providing health care to employees, beginning with the 2014 tax year.
Included in the 2010 Affordable Care Act, the tax credit is aimed at helping small business employers pay for employee health insurance and to encourage more of them to offer it.
For tax years 2010 to 2013, the maximum credit was 35% of premiums for small businesses and 25% of premiums for tax-exempt organizations. Starting with the 2014 tax year, the maximum credit is 50% of premiums for small businesses and 35% for tax-exempt organizations.
For businesses that do not owe taxes, the credit can be carried backward or forward to other tax years. Tax-exempt organizations may be able to claim the credit as a refund. There is also a provision that allows businesses to claim a deduction on the remainder of the premium that is not covered by the credit.
There is no downside to applying for the credit. If a business qualifies, they receive a credit. If they do not qualify, there is no risk involved. The biggest problem is the fact that many business owners do not know they can claim it.
In the credit’s first year, 170,300 employers claimed it, according to a 2012 study by the Government Accountability Office. It has provided more than $1 billion in credits since it first became available, according to the Department of Health and Human Services.
However, some small business owners find it hard to qualify for the credit.
In order to claim any credit, a business must meet certain criteria:
- You have fewer than 25 full-time equivalent (FTE) employees
- Your average employee salary is about $50,000 per year or less
- You pay at least 50% of your full-time employees’ premium costs
- You offer coverage to your full-time employees through the SHOP Marketplace
Higher benefits for smaller businesses:
The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit.
How To Claim the Tax Credit?
Check with your tax professional; even if you are a small business 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.
Use IRS Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. It is also important to know that eligible small business employers can still claim a business expense deduction for the remainder of their premium contributions.
If you have any questions, please feel free to contact JV LAW GROUP. Call us today at (714) 752-3270.
