Health Care Tax Credit Provides Savings for Small Business Owners
Tax Filing Extension Approaching on October 15
During these difficult economic times, small business owners have something to take with them to the bank. By providing health insurance coverage to their employees, small business owners can receive a real tax savings. The Affordable Care Act, under the Health Reform Law signed by President Obama on March 23, 2010, gives a tax credit to small businesses and small tax-exempt organizations that provide health coverage to their employees for tax years beginning in 2010. Small business owners that offer health insurance are encouraged to submit their claims before the tax filing deadline extension of October 15.
For tax years beginning in 2010 through 2013, employers may qualify for this small business tax credit up to 35 percent (up to 25% for non-profits), to offset the cost of their insurance. In 2014 this credit will increase to 50% (35% for non-profits), making the cost of providing insurance even lower.
The good news for small business owners is that this tax credit is in addition to the normal business deduction taken for expenses paid for employee health insurance premiums under IRC Section 162. However, the credit will reduce the deduction total by the amount of the credit. “Generally, tax credits translate into greater tax savings than deductions, so converting a portion of a general business deduction is advantageous,” shares Kelley Jensen with Filice Insurance and eIndividualHealth.com. To qualify for the small employer health care tax credit, employers must meet the following requirements:
- The employer must have fewer than 25 full-time equivalent employees (FTEs) for the tax year
- The average annual wages of its employees for the year must be less than $50,000 per FTE
- The employer must pay the premiums under a qualifying arrangement
To claim the small business health care tax credit, an employer must claim the credit on their annual income tax return with an attached Form 8941 showing the calculation of the credit. The credit can also be used to offset an employer’s alternative minimum tax liability for the year.
It’s advised to talk with a tax preparer about guidelines and other qualifications for this tax credit.
For more information on individual health insurance plans, visit www.eIndividualHealth.com, a full-service insurance agency that offers practical health insurance advice to individuals, families, young adults, and small businesses. eIndividualHealth is the sister company of Filice Insurance, one of the largest employee benefits and insurance consulting firms in Northern California, serving large and mid-size business consumers.
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- Kelley Jensen
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