How the Small Business Health Care Credit Impacts Your Business’s Taxes

Tax credits are harder to come by with the passage of new tax reform laws bringing new eligibility requirements. Especially with how quickly these came about, it’s understandably overwhelming for individual taxpayers; and more likely overwhelming for business owners, like yourself. Read further to see how you can take advantage of health care related tax credits.

 

How Does My Business Qualify for the  Small Business Health Care Tax Credit?

Your business likely qualifies for the Small Business Health Care Tax Credit if your employees number less than 25, and each of their employment status is full-time or similar status. 

 

What is the Small Business Health Care Credit?

The small business health care tax credit helps small businesses and tax-exempt organizations provide  employees health insurance. Small employers paying at least half of the premiums for employee health insurance coverage, under a qualifying arrangement, may receive this credit. Believe it or not, household employees  – or home-based employees – not engaged in a trade or business also qualify.

How Does the Credit Save Me Money?

The tax credit is up to 50% of employer contributions toward employees’ premiums (capped at 35% for tax-exempt employers). You can maximize this credit if your business has than 10 employees who are paid an average of $27,100 or less in 2019 ($26,600 in 2018). If your business is smaller in scale, your credit will end up bigger.

For example: if you have more than ten full-time employees the average salary amounts to more than $27,100, the lower your credit ends up being.

Note: The credit is available only if you get coverage through the SHOP Marketplace.

Here’s an example: If you pay $50,000 a year toward workers’ health care premiums–and qualify for a 15% credit–7,500 likely ends up the overall savings your business earns. If you save $7,500/year during tax years 2017 -2018, your savings would be $15,000. And if, in 2019, you qualify for a slightly larger credit, say 20%, your savings  increase to an overall $10,000 a year.

Is There Anything Else I Need to Know About Eligibility for this Credit?

Eligibility consists of the following:

• Covering at least 50% of the cost of single (not family) health care coverage for each employee in your business. 
• Have fewer than 25 full-time or equivalent employees
  • Their average wages need to be less than $50,000 a year. This amount is adjusted for inflation annually and in 2018 was $53,200.

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 equate to 10 full-time employees- making the overall number of full-time employees 10, not 20.

Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 employees. To calculate or determine  average wages, you divide $200,000 by 10–the number of employees — giving you the average wage. In this example, the average wage would be $20,000.

What if I’m a Tax-Exempt Business; Can I Still Receive the Credit?

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 liability.

Am I Still Eligible for the Small Business Health Care Tax Credit, Even If I Don’t Owe Any Tax This Year?

If you did not owe tax during the year as a small business, you can carry the credit backwards or forwards to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, you may 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 Claim the Credit for Previous Tax Years, While I File an Amended Return?

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 amended return.

If you already filed, but discover you qualified in 2016 or 2017, claim the credit by filing an amended return for one or both years.

Don’t hesitate to call if you have any questions about the small business health care credit.