Small Business Health Care Tax Credit Reminder

11/10/2011

By Mark Corey, CPA, JD

The IRS recently posted a "Special Edition Tax Tip" on their website to remind employers that the Small Business Health Care Tax Credit is still available for 2011 and beyond, not just its introductory year of 2010. This credit was designed to help small employers afford the health care costs for their employees for the first time or to maintain provided coverage at current levels in a time of sharply rising health care costs. Employers who have 25 or fewer employees with average incomes of $50,000 or less can qualify for this credit.

For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums. In 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business.

The basic rules of this credit require that an employer has 25 or fewer full time or full time equivalent employees. If you have a number of part-time employees you calculate their hours, add them together and divide by 2080 to figure out full-time equivalent employees. The average wages paid to employees cannot exceed $50,000, and the employer must pay at least half of the health insurance premiums for its employees. Employers use form 8941 (Credit for Small Employer Health Insurance Premiums) to claim the credit on their tax return. The credit is part of the general business credits on the employer's tax return.

If an eligible small business determines that they were eligible for the credit on their 2010 tax return they can still obtain the credit by amending their 2010 return.

Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page.

Since tax rules are never simple, there are many additional rules for calculating this credit that are beyond the scope of this article. To make sure you are eligible for the credit and are calculating it correctly please consult your tax advisor.