Small business owners that provided insurance coverage for employees may find some tax savings as a result. The Small Business Health Care Tax Credit, established by section 1421 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), is available for employers with fewer than 25 full-time equivalent employees that paid at least half of employees’ premiums. The IRS has released seven tax tips to help small business owners take advantage of the credit, even though most employers have fewer than 50 full-time employees (or equivalent) and are exempt from the ACA’s employer mandate, found at section 1513.
How to qualify. To qualify for the credit, an employer must have fewer than 25 full-time employees, or a combination of full- and part-time employees that add up to 25 (such as two half-time employees equaling one full-time employee). The average annual wages for 2015 must have been less than $52,000. The employer must have paid at least 50 percent premiums for all enrolled employees, and the amount must have been a uniform percentage. The plan itself must have been a qualified health plan from the Small Business Health Options Program (SHOP) marketplace, with limited exceptions.
How to claim. Form 8941 allows employers to calculate the credit amount. Small businesses can claim their credit on the annual income tax return, while small tax-exempt employers should claim the credit on Form 990-T. The maximum credit for small business employers is 50 percent of premiums paid, while the maximum credit for charities and other small tax-exempt employers is 35 percent of premiums paid. The credit is currently limited to two consecutive taxable years.
The IRS has created several tax tip documents for employers of all sizes to determine how the ACA may affect their tax liability and operating requirements.
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