Previously, as a small business owner (with 25 or fewer full-time employees making no more than an average of $50,000 per year), you have only been able to claim up to 35% of your health care premium as a tax credit. For tax-exempt businesses, a maximum of 25% of the premium was deductible. However, much has been changing in the health care industry in the United States. In the 2014 tax season, the regulations will change, and the small businesses will be able to claim a larger health care tax credit for up to two years.
The IRS website describes these changes as follows:
The maximum credit will increase to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.
The credit will be available to eligible employers for two consecutive taxable years.
This is great news for small businesses, because the opportunity to earn a bigger tax deduction will be made available. It works on a sliding scale, where the smaller the business, the larger the tax credit. Companies with 10 or fewer full-time employees will receive the full percentage, while those with more than 10 full-time employees will have less.Small businesses may be able to carry this credit back or forward for other tax years. It is also important to note that business owners and their dependents cannot be counted toward the tax credit.
This change was created as to incentivize small businesses to utilize the insurance provided by the Affordable Care Act, so employers must enroll in a qualified health plan offered through SHOP in order to receive this credit. In order to successfully claim this credit, it must be calculated using Form 8941.
So how can you find out if your business qualifies for this expanded tax credit? We at Employer Advantage Group are experts at navigating small business health care, and we are here to help. Whether you would like assistance with your small business taxes, or if you have other health care related questions, please contact us. We would be happy to help you find the most affordable health care plan for your employees.