The Small Business Health Care Tax Credit is a tax provision for small employers that provide qualified health coverage to their employees. A part of the Affordable Care Act , also known as Obamacare, entitles qualified employees to claim a tax credit of 50 percent of their premium contributions. To qualify for the tax credit, employers need to meet certain conditions, which we will discuss in this blog post. Let’s begin.
Qualification Criteria
In order to be considered a “small employer” and qualify for the Small Business Health Care Tax Credit, the business must meet the following criteria:
- Have no more than 25 full-time equivalent FTE employees
- The average wage paid must not be more $51,600 a year
- Must pay at least half of the employee health insurance premiums (not family or dependent)
In addition, the employer must have purchased the premium coverage through the Small Business Health Options Program or the SHOP Marketplace – unless they qualify for an exception to this requirement. To find out whether they are exempted, employers need to consult a tax attorney.
Other Influential Factors
Tax-exempt employers cannot claim more than 35 percent of credit on the purchased premium coverage. Employers that do not owe any tax during the year may carry the credit back or forward, while tax exempt-employers may be eligible to receive a refund on their credit. In addition, it is worth mentioning that seasonal workers are usually excluded when calculating the average wage for the year, unless they have worked with the employer for more than 120 days.
Maximum Credit for Small and Non-Exempt Employers
| Small Employers | Non-Exempt Employers |
| 50 percent of the premium payments for the taxable years beginning 2014 and forward | 35 percent of the premium payments for the taxable years beginning 2014 and forward |
| 35 percent of the premium payments for the taxable years beginning in 2010 through 2013 | 25 percent of the premium payments for the taxable years beginning in 2010 through 2013 |
Qualified Expenses
If you are filing a credit for FY 2014, only the premium coverage purchased through the SHOP Marketplace is considered as an expense toward the credit. If, however, you file for a tax credit for the taxable years 2010 through 2013, you may count the health insurance coverage purchased under a qualifying arrangement. When determining the premium payments that qualify as an expense for the credit, the following expenses are not taken into account:
- Health Flexible Spending Arrangements (FSAs)
- Employer Contributions to Health Reimbursement Arrangements (HRAs)
- Health Savings Accounts (HSAs)
Information Required to Claim the Credit
To claim the credit, employers need to file Form 8941, Credit for Small Employer Health Insurance Premiums. The information required in the form may include:
- Coverage cost of every qualified employee
- SHOP QHP documentation
- Letter of eligibility from SHOP, unless transition relief is applicable
- Total count of part-time and full-time employees
- Total count of hours worked
- Employees annual wages
- Payroll tax liability – for tax-exempt organizations only
- Relevant K-1s and other pass-through credit information
- Employer premiums paid per employee, if applicable
Conclusion
If you have a small business and offer health coverage to your employees, which is purchased through the SHOP Marketplace, you may qualify for the Small Business Health Care Tax Credit. To be able to take complete advantage of the tax provision, it is essential to learn every vital piece of information that may impact your claim. To receive a professional CPA referral call us at (972) 426-2553, or fill out our contact form to schedule a no-obligation consultation if you have any IRS debt resolution needs.
