Federal Health Care Tax Credit for Small Businesses
We encourage small businesses to review IRS guidelines to determine eligibility for the small business health care tax credit. The tax credit is part of the 2010 Affordable Care Act.
The small business health care tax credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. According to the Internal Revenue Service (IRS), small employers that pay at least one-half of the premium for employee health insurance coverage may be eligible for the small business health care tax credit. Small tax-exempt organizations also may qualify.
The credit is worth up to 35 percent of a small business's premium costs (25 percent for tax-exempt employers). In 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
To qualify, an employer must have fewer than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible). A qualifying employer also must pay average annual wages below $50,000.
The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
To determine if they qualify, businesses may use this three step fact sheet from the IRS. Eligible small employers will use IRS Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.
More information is available from the IRS.