Facts about the Small Business Health Tax Credit

Facts about the Small Business Health Tax Credit

The Small Business Health Care Tax Credit is designed to encourage small businesses and tax-exempt organizations to provide needed health care to their employees. This tax credit was introduced in 2010 under the Affordable Care Act. Qualifying businesses and charities can claim this credit and therefore reduce their tax bill dollar for dollar. This credit is available to both first-time health care employers and employers who have provided health care to their employees in the past. Below are the qualifying requirements for the tax credit:

Business size

To qualify for the Small Business Health Credit, a business or tax-exempt organization must have a maximum of 25 full-time employees or the equivalent. These employees must earn no more than $50,000 on average. An organization whose size is greater than this threshold is not eligible for credit. The IRS determines whether or not an employee is full-time according to the definition provided by the Department of Labor. According to the Department of Labor, a full-time employee is an employee who works at least 30 hours per week for the same employer.

Claim credit

For tax years 2010 through 2013, qualified businesses can claim up to 35% of the health care premiums paid for their employees, while tax-exempt organizations can claim up to 25% of their employees’ health care costs. However, for 2014 and beyond, the credit goes up to 50% of premiums paid for eligible businesses and 35% for eligible tax-exempt organizations.

Non-refundable credit

The Small Business Health Care Credit is a non-refundable tax credit. Therefore, organizations and businesses that are eligible to claim the credit can only use the credit against taxes owed. These qualified organizations cannot receive a refund check against the credit. However, if a qualified small business does not use up its entire credit in the year of claim, it can carry the credit from 2010 to 2016.

Filing the claim

For a business or tax-exempt organization to successfully claim this tax credit, they must file Form 8941, Small Employer Health Insurance Premium Credit. These forms allow employers to list employees and premiums paid and calculate the qualified credit they will claim for a given tax year. The qualified employer must also claim the final health tax credit amount on Form 3800, General Business Credit as part of the total business credits.

It is also important for employers to keep relevant documentation to support the claim in the event of an IRS audit. Support documentation includes receipts for premiums paid or a statement from your healthcare provider.

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