Posted by : Daniel Stoica in (Blog, Business Tax, Business Tax Credit, Business Tips, Tax Credit, Tax Deductions, Tax Tips, Tax Topic) On: December 29th, 2011
If you are a small business owner with employees who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35% of the premiums paid. Employers with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify.
The maximum credit for tax years 2010 to 2013 is 35% for small business employers and 25% for small tax-exempt employers such as charities. On Jan. 1, 2014, this rate will increase to 50% and 35%, respectively.
You can carry the credit back or forward to other tax years even if you did not owe tax during the year. And 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.
To be eligible, 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). Those employees must have average wages of less than $50,000 a year.
The amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 full-time equivalent employees, or if the average wage is more than $25,000, the amount of the credit you receive will be less.
Claiming the Credit
In order to calculate the credit, you must use Form 8941, Credit for Small Employer Health Insurance Premiums.
If you are a small business, include the amount as part of the general business credit on your income tax return.
If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don’t usually do so.
Remember… If you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.
For more information, check out the Small Business Health Care Tax Credit page on IRS.gov.