The Small Business Healthcare Tax Credit is set to encourage small businesses and tax exempt organizations to provide the necessary healthcare benefit to their employees. This tax credit was introduced in 2010 under the Affordable Care Act. Qualifying businesses and charities can claim this credit and therefore reduce their tax bill dollar for dollar. This credit is available to both first time healthcare providing employers and employers who have been providing healthcare for their employees in the past. Below are the qualifying requirements for the tax credit:
To qualify for the Small Business Healthcare Credit, a business or tax exempt organization needs to have a maximum of 25 full time employees or equivalent. These employees need to earn on average, not more than $50,000. An organization whose size is larger than this threshold does not qualify for the credit. The IRS determines whether an employee is full time or not according to the definition provided by the Department of Labor. According to the Department of Labor, a full time employee is an employee who works for at least 30 hours a week for the same employer.
Credit to Claim
For the tax years 2010 to 2013, qualifying businesses can claim up to 35% of Healthcare premiums paid for its employees while tax exempt organizations can claim up to 25% of their employee Healthcare expense. However, for 2014 and beyond, the credit goes up to 50% of premiums paid for qualifying businesses and 35% for qualifying tax-exempt organizations.
Non Refundable Credit
The Small Business Healthcare Credit is a non refundable tax credit. Therefore, organizations and businesses that qualify to claim the credit can only use up the credit against due taxes. These qualifying organizations cannot get a refund check against the credit. However, if a qualifying small business does not use up all its credit on the year of claiming, it can carry forward the credit from 2010 to 2016
Filing the Claim
For a business or tax exempt organization to successfully claim this tax credit, they need to file Form 8941, Credit for Small Employer Health Insurance Premiums. This forms enables the employers to list the employees and premiums paid and calculate the qualifying credit that they will claim for a given tax year. The qualifying employer also needs to claim the final Healthcare tax credit amount on the Form 3800, General Business Credit as part of the general business credits.
It is also important that employers keep the relevant documentation to support the claim in case of an IRS audit. The support documentation includes receipts of premiums paid or a statement from your healthcare provider.