For tax years 2010 through 2013, small businesses could apply for a tax credit of up to 35% of the premiums paid (25 percent for small tax-exempt employers). For tax years 2014 or later, there are several changes being implemented:
- The maximum credit will increase from 35% to 50% of premiums paid for small business employers (25% to 35% for small tax-exempt employers).
NOTE: The amount of your actual credit is calculated on a sliding scale. The smaller your business, the larger the credit.
- Employers must purchase their small group insurance through a Small Business Health Options Program (SHOP) Marketplace, such as Cover Oregon or Washington Health Benefit Exchange. For other states, find your Marketplace through HealthCare.gov.
- The credit will be available to eligible employers for two consecutive taxable years.
Is your business eligible?
You must meet three requirements to be eligible to claim the credit:
- You must cover at least 50% of the cost of employee-only health insurance for your enrolled employees.
- You must have fewer than 25 full-time equivalent employees (FTEs).
NOTE: The definition of FTE for this tax credit is 40 hours per week, so two 20-hour per week employees equal one FTE.
- The average wages of your FTEs must be less than $50,000 per year.
How do you claim the credit?
To calculate your credit, use Form 8941, Credit for Small Employer Health Insurance Premiums. For more information on everything related to this tax credit, check out IRS site on this topic Small Business Health Care Tax Credit for Small Employers.
You might find other posts on health care reform helpful, too. As always, your Xenium Benefits Department is here to assist you with your benefits questions. Feel free to contact one of our representatives at benefits@xeniumhr.com or (503) 612-1564.