The U.S. Small Business Administration is committed to educating small business owners about the facts surrounding the Affordable Care Act so they can make informed decisions about what makes sense for their business, including whether they want to apply for a tax credit.
Thanks to the Affordable Care Act, small businesses are benefitting from improved accountability and affordability in the health insurance market. As you prepare for the Small Business Health Options Program Marketplaces to begin open enrollment Oct. 1, it is important that small businesses owners who offer health insurance to their employees remember they also may be eligible for a tax credit. This can significantly offset the cost of providing insurance by crediting a percentage of small business owners’ premium contributions.
Through 2013, to qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) of their premium contributions, businesses must meet all of the following criteria:
• Have fewer than 25 full-time-equivalent employees
• Pay average annual wages less than $50,000
• Contribute 50 percent or more toward employees’ self-only health insurance premiums.
Beginning in January, the tax credit will increase to 50 percent (35 percent for nonprofits), and it will be available to small businesses that meet the criteria listed above and that purchase coverage through the SHOP Marketplaces (also known as exchanges).
This enhanced credit can be claimed for any two consecutive taxable years beginning in 2014 (or beginning in a later year) through the SHOP.
To determine whether your small business or tax-exempt organization qualifies for the credit, the Internal Revenue Service offers a helpful step-by-step guide. Visit www.taxpayeradvocate.irs.gov and search for the Small Business Health Care Tax Credit.
If you have additional questions about the tax credit, or if you need assistance completing the necessary forms, call the IRS Business Help Line at 1-800-829-4933.
Once you’ve determined you qualify for the credit, your tax professional can help guide you through the necessary steps to claim the credit. They include:
• Carrying the credit back or forward to other tax years.
• Obtaining a refundable credit if you are a tax-exempt employer. (Note: This is a federal tax credit. You also may be eligible for additional health care tax credits from your state.)
• Use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. It’s also important to know that eligible small employers can claim the credit and still take a business expense deduction for the remainder of their premium contributions.
The Affordable Care Act allows small employers to offer health coverage in a way that makes sense for their business and works for their bottom line, and the SBA is committed to leveraging resources and federal partnerships to connect you with the facts and resources you need to understand the law.Calvin W. Goings is a regional administration of the U.S. Small Business Administration. To learn more, visit www.sba.gov/healthcare or call the Seattle district office at 206-553-7310.