Benefit Boon: Do you qualify for the Small Business Heath Care Tax Credit?

As part of the Patient Protection and Affordable Care Act (also known as PPACA or Obamacare), a Small Business Health Care Tax Credit was created to help employers provide insurance to their workforces. In 2014, HR Morning notes that this credit will become a lot more substantial.

Specifically, HR Morning notes that the maximum credit will increase to 50 percent of the premiums small employers pay toward their employees’ health insurance premiums, up from the 35 percent maximum the credit was expected to pay out for tax years 2010 through 2013. In addition, the maximum credit for tax-exempt organizations will also climb from 25 percent currently to 35 percent next year. Further, the average employee salary limit of $50,000 employers need to stay under to qualify for the credit will be indexed for inflation, and will likely be on the rise, meaning more employees could potentially join the credit pool.

Of course, with all this good news, there has to be some bad. HR Morning points out that the following changes could influence your company’s tax credit:
•Employers will only be eligible for the credit if they purchase health insurance through the Small Business Health Options Program (SHOP marketplace), which has already been subject to a number of delays and glitches.
•The credit will be based on the lesser of the employer’s actual premium payments or the average premiums in the small group market the employer is subject to. In the past, the credit was based only on the amount paid by the employer.
•The credit will only be available for two consecutive tax years.

To qualify for the credit, your company must:
•Employ fewer than 25 full-time equivalent (FTE) employees.
•Pay average annual wages of less than $50,000 per FTE.
•Pay at least 50 percent of the premiums for each FTEs’ health coverage.

Employers with less than 10 FTEs and average annual wages of $25,000 or less are eligible for the full credit, with the amount adjusted to phase out for larger and more highly compensated workforces.

HR Morning notes that small employers who didn’t owe taxes during the year can carry the credit back or forward to other tax years and employers can still claim a tax deduction for the health insurance premiums paid in excess of the credit. Meanwhile, tax-exempt organizations can receive the credit as a refund as long as it doesn’t exceed their income tax withholding and Medicare tax liability.

To apply for the program, you must complete Form 8941, which will calculate the credit, and from there, non-tax-exempt employers can claim the credit as part of the general business credit on their income tax return.