As part of the health care reform legislation under the Affordable Care Act, small businesses are given some relief from the cost of employee health care coverage in the form of the Small Business Health Care Tax Credit (“SBHCTC”), effective on January 1, 2010. This credit allows small business employers that currently provide health insurance for their employees to receive immediate help with their premium costs. Small business employers that initiate coverage this year are able to receive the tax credit, as well. Plus, not only are small for-profit businesses eligible, but small not-for-profit organizations are eligible too. Furthermore, the small business health care tax credit may be carried back and applied retroactively to previous tax years, or carried forward to future tax years.
Benefits of the Small Business Health Care Tax Credit
For tax years 2010 through 2013, the maximum credit is 35% of premiums paid for by small business employers and 25% of premiums paid for by small tax-exempt employers, such as charities and other non-profit organizations. Starting in 2014, there will be changes to the credit. Instead of a maximum tax credit of 35% of premiums paid, small business employers will be able to claim a tax credit for up to 50% to offset the costs of providing health insurance coverage to employees. Likewise, small non-profit organizations will be eligible to claim a tax credit of up to 35%, rather than the previous 25%. In addition, a new eligibility requirement will be set forth: a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.
Advantages of the SHOP Marketplace
The SHOP insurance marketplace is a new program designed to simplify the process of buying health insurance coverage for small businesses employees. Advantages of the SHOP Marketplace include the ability of small employers to control the coverage offered and how much is paid toward employee premiums. Plus, small business employers can compare health plans online in a simplified, easy-to-understand format. Generally, small business employers will decide what they will pay toward employee premiums, and then their employees enroll online. Enrollment in the SHOP Marketplace becomes available starting October 1, 2013 and any time after January 1, 2014 with a SHOP Marketplace in each state. The online application will determine the right SHOP Marketplace for a particular small business employer.
More Tax Benefits for Small Business Employers
There are also tax benefits beyond the SBHCTC for health insurance premiums paid by small business employers. For instance, since the amount of the health insurance premium payments is more than the total available tax credit, eligible small business employers are able to claim business expense deductions for health insurance premiums paid in excess of the SBHCTC. Thus, small business employers are not only able to take a tax credit to relieve the cost of providing health insurance coverage to their employees, but they may also take a deduction for employee insurance premium payments. There is good news for small tax-exempt employers, as well. Since the SBHCTC is refundable, small non-profit organizations may be eligible to receive the credit as a refund as long as it does not exceed the organization’s income tax withholding and Medicare tax liability – even if the organization had no taxable income.
To be eligible for the SBHCTC, a small business employer must have no more than 25 full-time employees. In determining the number of full-time employees, it is important to remember that two part-time employees equal a full-time employee for health care tax credit eligibility purposes. Furthermore, all of the small business employees must be paid an average annual wage of $50,000 or less. Finally, the small business employer must pay at least half of employee health insurance premiums in order to qualify for the health care tax credit.
How to Claim the Credit
In order to claim the SBHCTC, small business employers must use Form 8941, “Credit for Small Employer Health Insurance Premiums”, to calculate and apply the credit. Small businesses include the amount calculated on Form 8941 as part of the general business credit on their income tax returns. Tax-exempt organizations include the amount calculated on Form 8941 on Line 44f of the Form 990-T, “Exempt Organization Business Income Tax Return.” Form 990-T must be filed in order to claim the credit, even if it is not normally filed. Last, but not least, small business employers may benefit from the credit even if they forgot to claim it on their tax return by filing an amended return in a timely fashion.
Questions about the SBHCTC? Contact me or call (513) 241-8313.