Small Employer? Get the Credit You Deserve

If you have fewer than 25 full-time-equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of employee health insurance premiums, the Small Business Health Care Tax Credit may put money in your pocket.

For tax years 2010 through 2013, the maximum credit is 35% for small business employers and 25% for small tax-exempt employers such as charities. An enhanced version of the credit will be effective Jan. 1, 2014, when the rate will increase to 50% and 35%, respectively.

What Does This Mean for You?

If you pay $50,000 a year toward workers’ healthcare premiums: and if you qualify for a 15% credit: you save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s a total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20%, your savings go from $7,500 a year to $12,000 a year.

Even if you 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 exceeds 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.

How Do You Claim the Credit?

You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. If you are a small business, include the amount as part of the general business credit on your income tax return.

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return.