Small Business Health Care Tax Credit

Are you an employer with fewer than 25 employees? If so, then get the credit you deserve: the Small Business Health Care Tax Credit.

Whether you are a for-profit business or a tax-exempt group, if you pay at least half the cost of premiums for single coverage health insurance for your employees, you may qualify.

The credit has been around since tax year 2010, but some of the rules change for tax years beginning 2014 or later.

First, the maximum credit increases from 35% to 50% for small business employers, and from 25% to 35% for small tax-exempt employers.

Next, to claim the credit, generally employers must offer employees insurance purchased through the Small Business Health Options Program known as the SHOP Marketplace.

Finally, in 2014 and in subsequent years, the credit is only available to eligible employers for two consecutive taxable years. Although the maximum credit amount changes, the definition of a small employer has not. For the purpose of the credit, it’s an employer with fewer than 25 employees, and those employees must earn low to moderate wages.

There are other special rules. For example, two half-time employees generally count as one full-time employee.

If you’re a small business, you’ll claim the credit as part of the general business credit on your income tax return using Form 8941. If you have no tax due, you can carry the credit back or forward to other years. Since the credit will be less than the full amount of your premium payments, you may be eligible to claim a business expense deduction for the difference. That’s both a credit and a deduction for employee health insurance premium payments!

If you’re a tax-exempt employer, you’ll claim the credit on Form 990-T. For you, the credit is refundable, so you can get it even if you owe no tax.

For more information, go to IRS.gov/ACA.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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