Does your Client’s company get a Small Business Health Care Tax Credit?
In order to get the Small Business Health Care Tax Credit, a business must have fewer than 25 full-time workers or the equivalent of part-time employees (the hours worked by part-timers count), pay an average annual wage of less than $50,000, and cover at least half the cost of health insurance premiums for their workers.
Businesses with fewer than 10 employees and average wages less than $25,000 can max the credit out, while larger firms and those with higher payrolls collect a reduced credit due to a sliding scale. An additional restriction includes a caps on how high qualifying premiums can be.
For 2010 through 2013, the tax credit covers up to 35% of the money a qualifying business spends on its health insurance premiums. In 2014, the top tax credit bumps up to 50%. The credit is available for a maximum of six years: 2010 through 2013 and for any two years after that.
How to Determine Your Company’s Credit:
If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, here is how you can determine if you may qualify for the Small Business Health Care Tax Credit. Follow these three simple steps:
Step 1. Determine the total number of your employees (not counting owners or family members):
Full-time employees:__________
(enter the number of employees who work at least 40 hours per week)
+
Full-time equivalent of part-time employees:__________
(Calculate the number of full-time equivalents by dividing the total annual hours of all part-time employees by 2080.)
= __________ total employees
If the total number of employees is fewer than 25 GO TO STEP 2
Step 2. Calculate the average annual wages of employees (not counting owners or family members):
Take the total annual wages paid to employees:__________
÷
Divide it by the number of employees from STEP 1:__________ (total wages ÷ number of employees)
= __________ average wages
If the result is less than $50,000, AND . . .
Step 3. You pay at least half of the insurance premiums for your employees at the single employee-only) coverage rate, then you may be able to claim the Small Business Health Care Tax Credit.
For nonprofit employers, the credit is refundable, meaning they can collect it and get a check back from the government even if the business runs at a loss and has no taxable income. For-profit companies can only use the credit to offset the actual federal income taxes they pay for the year. However, any unused portion of the credit can be carried forward for up to 20 years to reduce future taxes.
