Employers are facing increased costs in 2015 relating to the health insurance coverage provided to employees, but some small business owners may benefit from a special tax break.
As the cost of health insurance continues to rise, it outpaces inflation each year. Not only are the costs excessive for current levels of income, employers now must meet additional responsibilities under the Affordable Care Act (ACA). The employer mandate to provide minimum essential health insurance will be in effect next year for midsized employers that have 51 to 99 full-time/full-time-equivalent employees (FTEs). Larger employers are already being affected while small employers are currently exempt.
Though exempt, small businesses that provide health insurance coverage to employees may benefit from a health insurance premium credit in 2015. Effective since 2014, the maximum amount of credit has increased from 35% to 50% of the cost of premiums paid by a small business.
A small business is eligible for the credit if:
- It has fewer than 25 FTEs (full-time-equivalents);
- The average annual wages to employees are less than $50,000 (with an adjustment for inflation to $51,600 in 2015); and
- It can pay employees a uniform percentage equal to at least 50% of the healthcare cost of employee-only insurance coverage
Calculating an employer’s FTEs can be crucial in determining employer size. Each part-time employee counts as a part of an FTE. For example, two half-time employees equal one full-time-equivalent for tax credit purposes.
This tax break allows small businesses to qualify for the health insurance credit if the coverage is purchased through a Small Business Health Options Program (SHOP) Marketplace, established under the ACA. Small employers can “SHOP around” and check out their opportunities before the end of the year.
Small employers may claim the credit for two consecutive tax years only, beginning with the first taxable year in or after 2014. Any claims made in the years from 2010-2013 are excluded and do not count towards the restriction of two years.
To file your claim, complete Form 8941, Credit for Small Employer Health Insurance Premiums, and attach it to your tax return. If you have further questions visit IRS.gov/HealthCareTaxCredit or speak with your CPA.
