Credit for Small Employer Health Insurance Premiums

The small business health care tax credit

Small businesses can get a tax credit if they:

  • Have fewer than 25 full-time equivalent employees
  • Pay employees an average wage of less than $50,000 per year
  • Pay at least half the premium cost of self-only coverage for each employee (not half of the family premium)
  • Purchase benefits through the SHOP exchange in 2014

How the tax credit can put money back in a small business owner’s pocket

For tax years 2010 through 2013, the maximum credit is 35% for small businesses and 25% for small tax-exempt businesses, such as charities. Starting on January 1, 2014, the maximum credit is going up to 50% for a small business and 35% for a tax-exempt small business.

How small business owners can save even if they don’t owe taxes

  • If a small business didn’t owe any taxes during the year, the credit can apply toward past or future tax years. And because the premiums a small employer pays will remain deductible as a business expense, the business can still claim a deduction for premiums that are more than the credit.
  • For tax-exempt employers, the credit is refundable. So even if an employer has no taxable income, the employer may be eligible to receive the credit as a refund as long as it does not exceed the employer’s income tax withholding and Medicare tax liability.

How to claim the tax credit

Small employers need to fill out Form 8941, Credit for Small Employer Health Insurance Premiums. Tax-exempt employers need to fill out Form 990-T, Exempt Organization Business Income Tax Return.

To learn about other health care reform topics, check out the timeline and FAQs on our broker/employer health care reform website or visit our consumer resource at featuring Health Care Refom 4 You.

This article gives basic information. It is not legal or tax advice. Encourage your individual and group clients to discuss these issues with their own tax and legal advisers.

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