Did you know that your small business could be eligible to receive tax credits for offering health insurance benefits to your employees? The Small Business Health Care Affordability Tax Credits are made possible by the Affordable Care Act passed in 2010. Hopefully your tax preparer checked to see if your small business qualified for the tax credit in 2010. If you missed out in 2010, there are more opportunities to earn the tax credit through 2013. It was estimated that about 4 million small businesses would qualify for the health care tax credit in 2010.
The Small Business Health Care Tax Credits were created to help small businesses and small tax-exempt organizations offer health insurance benefits to their employees. The credit is designed to encourage small businesses to offer health benefits for the first time or to help them maintain the current benefit plans they already have in place. The credit specifically targets small employers that employ low-income and moderate-income workers.
Amount of the Tax Credit
- 2010 – 2013:
- Small Businesses: Eligible employers can receive a tax credit of up to 35% of the business’ annual health insurance premium costs.
- Tax-Exempt Organizations: Eligible tax-exempt organizations can receive a tax credit of up to 25% of the organization’s annual health insurance premium costs.
- 2014 – Beyond:
- Small Businesses: Eligible employers who purchase insurance through the new Health Insurance Exchanges can receive a tax credit for 2 years of up to 50% of the business’ annual health insurance premium costs.
- Tax-Exempt Organizations: Eligible tax-exempt organizations that purchase insurance through the new Health Insurance Exchanges can can receive a tax credit for 2 years of up to 35% of the organization’s annual health insurance premium costs.
- Phase Out: The tax credits phase out when your small business employs between 10-25 full time employees and when you pay your employees average annual wages between $25,000-$50,000.
Employer Eligibility Rules
- Employ fewer than 25 full time employees
- Pay average annual wages below $50,000
- Employer must cover at least 50% of the cost of the health insurance premiums
- Both for profit businesses (taxable) and non-taxable organizations can be eligible
- Household Employers may also qualify for the tax credit in 2010-2013.
Receive the Tax Credit
To calculate your small business or tax-exempt organization’s health insurance tax credit, fill out Form 8941, Credit for Small Employer Health Insurance Premiums. Then you will include the tax credit on your annual business tax return.
Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.