If you own or manage a small business, you should know that covering at least one-half of employee health insurance premiums might make you eligible for a tax credit. This tax credit, known as the “small business health care tax credit”, applies to many small businesses as well as certain tax-exempt employers.
Small Business Health Care Tax Credit Details
The small business health care tax credit had a ceiling of 35% for small business owners in the tax years from 2010-2013. It topped out at 25% for diminutive tax-exempt employers in this time span. Yet the maximum credit jumped to 50% for small businesses that provided employee health insurance in the tax years 2014 and beyond. Small-sized tax-exempt employers enjoy a maximum credit of 35% from 2014 onward.
Which Types of Small Businesses Qualify for the Credit?
Small businesses that have 25 or fewer full-time employees qualify for the small business health care tax credit. Those that pay an average annual salary of $49,999 or less qualify. These employers must pay at least one-half of employee health insurance premiums in order to take advantage of the credit.
Breaking Down the Math: How the Small Business Health Care Tax Credit Helps
Consider a scenario in which a small business qualifies for a considerable small business health care tax credit. Let’s say the business in question is eligible for a 20% kick-back. If the business pays $50,000 per year to cover a portion of employee health care premiums, it will save a whopping $10,000 per year. The beauty of this tax credit is that small business employers that do not owe tax throughout the year are still eligible to carry the credit on to other tax years.
It gets even better: The amount of the health insurance premiums paid by the employer will be greater than the total credit, allowing the small business to claim a business expense deduction for cost of the premiums that exceed the value of the credit. In a nutshell, eligible small businesses can benefit from the small business health care tax credit in two ways: the credit itself and through a deduction.