If you are a small employer, there is a tax credit that can put money in your pocket.
The small business health care tax credit benefits employers that:
- have fewer than 25 full-time equivalent employees
- pay an average wage of less than $50,000 a year
- pay at least half of employee health insurance premiums
To be eligible for this credit, you must have purchased coverage through the small business health options program, also known as the SHOP marketplace. Information about the specific plans can be found at www.Healthcare.gov.
How does the tax credit work?
If you provide coverage for your employees in 2017:
- The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
- To be eligible for the credit, a small employer must 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 exception to this requirement.
- The credit is available to eligible employers for two consecutive taxable years.
Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
Can you claim the credit?
To be eligible, you must cover at least 50 percent of the cost of employee-only (not family or dependent) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 per year. Remember, you will have to purchase insurance through the SHOP Marketplace (or qualify for an exception to this requirement) to be eligible for the credit for tax years 2014 and beyond.
What IS an FTE? Basically, two half-time employees count as one FTE. That means 20 half-time employees are equivalent to 10 FTEs, which makes the number of FTEs 10, not 20.
If you pay total average annual wages of $200,000 and have 10 FTEs. To figure average annual wages you divide $200,000 by 10 — the number of FTEs — and the result is your average annual wage. The average annual wage would be $20,000.
The amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000 (as adjusted for inflation beginning in 2014), the amount of the credit you receive will be less.