Claiming the Small Business
Health Care Tax Credit
you're a small business owner with fewer than 25 full-time
equivalent employees you may be eligible for the small
business health care credit that went into effect in 2010.
What is the Small Business Health Care
The small business health care tax credit, part of the
Affordable Care Act enacted in 2010, is specifically targeted
to help small businesses and tax-exempt organizations provide
health insurance for their employees. Small employers that pay
at least half of the premiums for employee health insurance
coverage under a qualifying arrangement may be eligible for
How Does the Credit Save Me
For tax years 2010 through 2013, the maximum credit is 35
percent for small business employers and 25 percent for small
tax-exempt employers such as charities. An enhanced version of
the credit will be effective beginning Jan. 1, 2014 and the
rate will increase to 50 percent and 35 percent, respectively.
The amount of the credit you receive works on a sliding scale,
so the smaller the business or charity, the bigger the credit.
Simply put, if you have more than 10 FTEs or if the average
wage is more than $25,000, the amount of the credit you
receive will be less.
If you pay $50,000 a year toward workers' health care
premiums--and you qualify for a 15 percent credit--you'll save
$7,500. If you save $7,500 a year from tax year 2010 through
2013, that's a total savings of $30,000. And, if in 2014 you
qualify for a slightly larger credit, say 20 percent, your
savings go from $7,500 a year to $12,000 a year.
Is My Business Eligible for the Credit?
To be eligible for the credit, you must cover at least 50
percent of the cost of single (not family) health care
coverage for each of your employees. You must also have fewer
than 25 full-time equivalent employees (FTEs) and those
employees must have average wages of less than $50,000 a year.
Let's take a closer look at what this means. A full-time
equivalent employee is defined as either one full-time
employee or two half-time employees. In other words, two
half-time workers count as one full-timer or one full-time
equivalent. Here is another example: 20 half-time employees
are equivalent to 10 full-time workers. That makes the number
of FTEs 10 not 20.
Now let's talk about average wages. Say you pay total wages of
$200,000 and have 10 FTEs. To figure average wages you divide
$200,000 by 10--the number of FTEs--and the result is your
average wage. In this example, the average wage would be
Can Tax-Exempt Employers Claim
Yes. The credit is refundable for small tax-exempt employers
too, so even if you have no taxable income, you may be
eligible to receive the credit as a refund as long as it does
not exceed your income tax withholding and Medicare tax
Can I Still Claim the Credit Even If I
Don't Owe Any Tax This Year?
If you are a small business employer who did not owe tax
during the year, you can carry the credit back or forward to
other tax years. Also, since the amount of the health
insurance premium payments are more than the total credit,
eligible small businesses can still claim a business expense
deduction for the premiums in excess of the credit. That's
both a credit and a deduction for employee premium payments.
Can I File an Amended Return
and Claim the Credit for Previous Tax Years?
If you can benefit from the credit this year but forgot to
claim it on your tax return there's still time to file an
Businesses that have already filed and later find that they
qualified in 2010 or 2011 can still claim the credit by filing
an amended return for one or both years.
Give us a call if you have any questions about the small
business health care credit.
If you are interested in similar articles you can
Please contact us if you need help understanding which
tax changes will help you and your family or business
situation. We are always
available to assist you.
As always you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA
President, Sullivan & Company