Don't Forget About the Small Business Health Care Tax Credit

Don’t Forget About The Small Business Health Care Tax Credit

This article was updated on 12/8/2015 to reflect current figures.

Does your payroll program need a boost? Don’t miss out on receiving the Small Business Health Care Tax Credit on your taxes this year. The credit is worth up to 50% of your contribution toward your employees’ premium costs.

The Affordable Care Act

The Affordable Care Act (ACA) determines which employers must offer their employees health coverage. The insurance you must offer is based on the number of employees you have.

If you have 50 or fewer full-time employees, you are not required to offer health coverage. You may choose to offer coverage.

Health care tax credit eligibility

Some small businesses that offer employee health coverage can get the Small Business Health Care Tax Credit. Employers must meet the guidelines set by the IRS to be eligible.

The credit is available to employers that meet all the following:

Key points of eligibility

There are several important points to look at about eligibility for the credit. Be sure you understand how your payroll program fits into requirements before filing.

1. You must have fewer than 25 full-time equivalent employees. The ACA considers employees full-time after they work 30 hours or more a week.

The hours of several employees can count as one full-time equivalent employee. For example, you might have two employees that both work 15 hours per week. Consider both employees as one full-time equivalent employee.

2. You must contribute toward premiums for each employee enrolled in a qualified health plan. These plans are offered through a Small Business Health Options Program (SHOP). The SHOP Marketplace makes offering affordable insurance to employees easier for small business owners.

3. Tax-exempt organizations are also eligible for the tax credit. They must meet the same criteria as other small businesses. Tax-exempt organizations can receive a 35% tax credit on their employee premium costs.

4. Find out if you qualify for the tax credit and what expenses you can claim on your tax return. Use this calculator to see if you are qualified.

Full tax credit

The full tax credit for small businesses is a 50% credit on employee premium costs.

You can only get the full tax credit if your business meets the following:

  • You have less than 10 full-time equivalent employees.
  • You pay $10,000 or less in average annual employee wages.
  • You pay at least 50% of employee premiums.
  • Your employees are covered through the Small Business Health Options Program (SHOP) Marketplace.

Claiming the health care tax credit

You claim the tax credit on your annual income tax return. Send Form 8941, Credit for Small Employer Health Insurance Premiums with your return.

You can claim for tax years 2010 through 2012 if you have not already. The rules for the tax credit changed for 2014. After 2014, you can claim the tax credit for no more than two years in a row.

This means if you qualified for the tax credit since 2010, you can claim 2010-2015, but not after 2015. You cannot get the tax credit in 2014 and in 2016 because the years you claim must be consecutive.

The tax credit and your payroll program

Several things may affect your health care tax credit. Some of your insurance choices may help you get you a higher credit, while other choices may put you at risk for a lower credit. These examples could affect your tax credit:

  • Wellness programs. Offering programs that promote healthy choices and disease prevention may increase your tax credit. You must pay for all or part of each employee’s participation in programs.
  • Tobacco surcharges. A tobacco surcharge is an additional charge on a tobacco user’s insurance premium. If you pay all or part of your employee’s surcharge, you cannot claim that amount. This will not help you get a higher tax credit.
  • Partially paid premiums. You might pay only part of your employees’ premiums. You take the other part of the premiums out of employee paychecks. You only can claim the part you actually paid.

Do you need an easy way to track your employees’ paychecks? Try our online payroll software for free today!

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