Small Business Health Care Credit

One of the provisions of the Affordable Care Act (ACA) was to encourage employers to pay health insurance premiums for their employees by creating a credit for part of premiums paid. This very flexible credit can be a valuable savings for business owners willing to jump through the hoops to document their plans properly.

About the ACA Small Business Health Care Tax Credit...

How much is the credit for?

The maximum credit will increase to 50% for small business employers paying premiums in 2014. This is limited though by employee wage levels. For 2012 and 2013 tax years a 35% credit may have been available, and if you did not receive that then it may be a good idea to file an amended return and get that now.

Can I get a credit for my own premiums?

No. Owners of a sole proprietorship, partners in a partnership, and shareholders of a corporation are not qualified employees for health insurance premium payments of that company. Also their wages are excluded from the credit calculation.

Seasonal Workers

Seasonal workers who work less than 120 days in a year do not qualify for credit. Also if workers are temporary they will not qualify even if health benefits are paid on their behalf. Illegal aliens and non-US residents also do not qualify.

Prior Years Credits

Qualifying plans for 2012-2013 can be from any insurer, they do not have to be purchased from the SHOP marketplace. Can incude dental, vision, and long term care plans. Disability or liability plans are not covered, neither is workers comp. Does not include HSAs or any flexible spending account. Premiums limited to the average in your state.

SHOP Marketplace

Beginning in 2014 the employer must participate in the SHOP marketplace. Plans from the SHOP marketplace can still be offered by insurance brokers so make sure you get the proper documentation to qualify yourself for this credit. Transition Relief may be available to some employers to qualify with their existing plans in 2014 if the plans were not offered in their area.

Employee Income Levels

Phaseout on average annual wage amounts occure in the range of $24,500-$50,800. Credit is only available for employees in this wage range. Maximum credit comes into play with 10 employees at wages averaging just under $25,000 a year.

Mid Year Enrollment

If the plan year changes in the middle of the year you can enroll in the middle of the year for the new SHOP plan and still qualify for the entire year. So if you changed during the year you may still be eligible to recieve the credit for a full year's worth of payments.

How Flexible Is the Credit?

The credit is refundable, meaning it can create a tax refund even if no taxes were paid in during the year. Plus it can be used as a credit against Alternative Minimum Tax. Or the credit can be elected to be carried to future or previous years.

Dependent Coverage

Dependent coverage is optional for employers to offer in most states. Employer may include premiums for their employee's dependent's coverage in credit calculation to receive up to 50% of what was paid on their behalf.

Wellness Programs

Amounts paid for participating in a wellness program are also included in the credit calculation. Wellness programs include programs to stop smoking, weight loss, or even gym memberships and cash incentives for health. This can be a great way to add employee benefits that help retain your best people without raising wages, while gaining a valuable tax credit.

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