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Small Business Health Care Tax Credit

On March 23, 2010 the government passed the highly publicized Affordable Health Care for America Act that affected most Americans. Included in this bill were specific credits aimed to help small-business owners reduce their taxes by way of a credit based on the level of employee health insurance premiums that they pay.

In order to qualify for the credit, you must cover at least 50 percent of single (not family) health care coverage for each employee. You also must have fewer than 25 full-time-equivalent employees. These employees must have an average wage of less than $50,000 a year. This credit operates on a sliding scale; therefore, the smaller the business, the bigger the credit will be. 

For tax years 2010-2013, the maximum credit available is 35 percent for small-business employers and 25 percent for small tax-exempt employers. This credit is slated to jump to 50 percent and 35 percent, respectively, on January 1, 2014 but more specific information on the enhanced information will be available in the near future.

It is important to note that if small-business owners do not owe tax during the year, they can carry the credit back or forward. It is also important to recognize that the amount of health insurance premium payments is more than the total credit, so eligible small businesses can still claim a business-expense deduction for the premiums in excess of the credit.

For Example:

A dental practice has 10 full-time-equivalent employees and has wages of $250,000, or $25,000 per full-time employee. The dental practice spends $80,000 on employee health care costs. At this level, in 2010 the dental practice would receive a $28,000 credit (35%). In 2014, this same dental practice would receive a $40,000 credit (50%).

This credit could prove to be extremely beneficial to small businesses and should be taken into consideration when filing your 2011 taxes. This credit can be claimed on your income tax return by using Form 8941. 

 

Please contact Leslie Shoemaker at lshoemaker@BlackmanKallick.com or 312-980-3303, or your Blackman Kallick representative for more information. Our thanks to Melissa Colgan for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.