The Small Business Health Care Tax Credit
By Stana Nakhle
The Small Business Health Care Tax Credit created by the Affordable Care Act provides a tax credit to some small businesses, both for-profit and nonprofit, that offer health insurance to their employees.
Before 2014, for-profit small businesses can claim a credit of up to 35% (and nonprofits of up to 25%) of what they contribute towards workers’ health insurance premiums.
The amount of the credit depends on the type and size of the business and the premium costs, but here’s an example of what it could mean for you: if you paid $50,000 in 2011 toward workers’ health care premiums, and if you qualify for a 15 percent credit, you may be able to claim a tax credit worth $7,500.
In order to claim the tax credit you must:
- Employ fewer than 25 full-time equivalent employees (FTEs) who earn average wages of less than $50,000 a year
- Cover at least 50 percent of the cost of individual (not family) health care coverage for each of your employees
One way to think about FTEs is to remember that two half-time workers count as one full-time worker. So, if you hire ten employees at half-time hours, this is equal to your employing five full-time workers, meaning you have five total FTEs.Then, take the total wages you pay to employees in a year and divide this figure by the number of FTEs you employ. If, for example, you pay $100,000 in wages to employees annually, and have hired the equivalent of four full-time employees, this calculation would be: $100,000 divided by 4 = $25,000. So your average employee wage is $25,000.
Small Business Health Care Tax Credit Facts
- The credit can be claimed for premiums paid for health insurance and certain other types of coverage, including stand-alone dental and vision plans.
- The credit decreases as the size of the business increases, and businesses with 25 or more FTE workers or annual average wages of $50,000 or more are not eligible for the credit. For tax years 2010 through 2013, for-profit businesses can claim up to 35 percent and nonprofits can claim up to 25% of the employer’s contribution towards workers’ premiums.
- Even if you are a small business employer who did not owe tax during the year, you can carry the credit forward to other tax years.
To see if your small business or nonprofit organization qualifies for the credit, try this step-by-step guide provided by the IRS.
You can find all the information in this article on NYC Health Insurance Link’s Small Business Tax Credit page. NYC Health Insurance Link is a web-based tool to help New Yorkers find health insurance that best fits their healthcare needs and budgets. Launched in 2009 by Mayor Bloomberg and Human Resources Administration Commissioner Robert Doar, NYC Health Insurance Link assists small business owners, freelancers and other independent or unemployed workers who do not currently have health insurance coverage or are looking for more affordable coverage.
Stana Nakhle is a Director of Health Insurance Initiatives for the Human Resources Administration’s Office of Citywide Health Insurance Access (OCHIA). Stana directs the maintenance and development of NYC Health Insurance Link, manages marketing and outreach initiatives, and provides training on health insurance and health care options to small businesses in NYC.
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