Small Business Health Care Tax Credit

Small employers that have 25 or fewer full time employees (FTEs) may be eligible for incentives from the federal government to provide their employees with health coverage.  Unfortunately, a very low percentage of employers are taking advantage of this credit.

Which Expenses Qualify?

The expenses that an employer may count toward the tax credit include the health insurance premiums paid for each employee.  Contributions to self-insured plans such as Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are not eligible for the credit.

What Are the Qualifications?

To qualify for the Small Business Health Care Tax Credit, employers must meet the following criteria.

1. Firm size:  A employer must have less than the equivalent of 25 full-time workers when totaling all individuals' hours of employment.

2. Provide health care coverage:  The employer must confirm that it pays at least 50% of the cost of health care coverage for employees.

3. Wages paid: Employers must pay their workers an average of less than $50,000 per year.

Any employer that satisfies all three of these requirements is eligible for the tax credit; however, the smaller, lower wage employers will receive a larger tax credit than those employers who just barely meet the criteria. Click below to view the IRS instructions for the Credit.

<http://links.mkt1973.com/ctt?kn=2&ms=NTE0NTc5MgS2&r=MjI1MjgxNDMwNjMS1&b=0&j=MTU0MTg5MzMwS0&mt=1&rt=0> 

Calculating the Tax Credit

The Small Business Health Care Tax Credit currently offers a maximum benefit of 35% of an employer’s premium contributions (25% for nonprofits) to a health insurance plan. Only the employer contribution is counted toward the credit—not the entire premium cost. In order to qualify for this maximum credit, an employer must have 10 or fewer FTEs who have average wages of $25,000 or less. The benefit becomes slowly less generous as employers reach the $50,000/25 FTE.

In 2014, the tax credit will increase from a maximum of 35% of premium costs to 50% (35% for nonprofits). The credit will be available only to those who purchase insurance through the Small Business Health Options Program (SHOP) Exchanges. Employers will be able to claim this credit for only two years.

Below is the link to the worksheet that will generate a report for employer size and eligibility for a tax credit. 

https://compliance.benefitmall.com//?bid=m/foUrpuJi2HdHQUG8bRJQ==&fk=1