You might have read our past blog post, ACA and Employers: Why Workforce Size Matters. As mentioned, if you are a small employer, you might be eligible for the Small Business Health Care Tax Credit. In this post we will discuss the qualification requirements and other details regarding this credit.
In order to qualify, you must meet the following criteria:
- Purchased health coverage through the Small Business Health Options Program, i.e., the SHOP marketplace, or qualify for an exception to this requirement
- Have fewer than 25 full-time equivalent employees
- Pay an average wage of less than $50,000 per year
- More than half of employee premiums are paid by the business
Beginning in 2014 tax years, the credit maximum goes up to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers. This credit is available to eligible employers for two consecutive tax years. Even if you did not owe tax during the year, you can carry the credit backward or forward to other tax years. Plus, since the amount of the premium for health insurance is more than the credit total, eligible small businesses can claim a deduction for the premiums in excess of the credit. That is a credit and a deduction for employee premium payments.
There is great news for small tax-exempt employers also. The credit is refundable! Even if you have no taxable income, you can still receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability. However, do note that the refund payments issued to small tax-exempt employers are subject to sequestration.
You can benefit from the credit even if you didn’t place it on your 2014 tax return by filing an amended return. Usually, a claim for a refund must be filed within three years from the time the return was filed, two years from the time the tax was paid, or the period that expires later. For the tax years 2010 through 2013 the maximum credit is 35% of the premiums paid for small business employers and 25% of premiums paid for small tax-exempt employers like charities.
You must use Form 8941 to calculate the credit. If you need detailed information on completing this form, see the Instructions for Form 8941. If you are a small business, please include the amount as part of your general business credit on your tax return.
If you are a tax-exempt firm, include the amount on line 44f of Form 990-T. You must file it in order to claim the credit, even if you don’t have to ordinarily.
Please visit the Small Business Health Care Tax Credit page for more information.
