The Small Business Health Care Tax Credit is changing in 2014 to better benefit small business owners. In this article, you'll find out what the three major differences are between 2014 and previous years, how to become eligible, and how the exact credit percentage is determined.
The three major differences are:
- The maximum credit increased from 35% to 50% of premiums for small business employers and from 25% to 35% of premiums paid for small tax-exempt employers
- Employers are eligible for the credit only if they pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exemption to this requirement
- The credit is available to eligible employers for two consecutive taxable years
Those changes sound great, but what does it mean for employers? It means that if you pay $50,000 a year towards your employees’ health care premiums, and qualify for a 20% credit, you are saving $10,000 a year!
How do you become eligible?
- You must cover at least 50% of the cost of employee-only health care coverage for each of your employees
- You must have fewer than 25 full-time equivalent employees
- Your employees must have average wages of less than $50,000 (adjusted for inflation beginning in 2014) per year
- You must purchase insurance through the SHOP Marketplace (or qualify for an exemption)
How is your exact credit percentage determined?
The credit percentage is determined on a sliding scale – the smaller the business or charity, the bigger the credit. The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The IRS works with the Department of Health and Human Services to obtain average premium figures for the Small Employer Health Care Tax Credit. If you would like to estimate your tax credit, you can do so through the Healthcare.gov website here.
You can find more information regarding eligibility, form submissions, and instructions for submissions by visiting IRS.gov.
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.