These questions and answers on the Small Business Health Care Tax Credit are adapted from the IRS web site for companies considering getting federal subsidies to help pay premiums for their workers to get health insurance. The subsidies are authorized by health reform law.
Q: Which companies qualify for a federal health care tax credit?
A: Through 2013, to qualify for a small business tax credit of up to 35 percent (25 percent is the limit for non-profits) of premium contributions, an employer must meet all of these criteria:
- Employ fewer than 25 FTEs.
- Pay average annual wages below $50,000.
- Contribute 50 percent or more toward employees’ self-only health insurance premiums.
Beginning in 2014, this tax credit increases to 50 percent (35 percent for non-profits) and will be available to small businesses that meet the criteria listed above and purchase coverage through the new SHOP exchanges.
Q: What companies get the largest subsidies?
A: While any business meeting the above standards may be eligible to receive a tax credit of up to 35 percent (25 percent for non-profits), the small business tax credit works on a sliding scale and is specifically targeted for those businesses with low- and moderate-income workers.
To qualify for the maximum small business tax credit, a small employer must:
- Contribute at least 50 percent toward your employees’ self-only premium costs.
- Employ 10 or fewer full-time employees.
- Pay annual average wages at or below $25,000.
Q: How does a company claim the tax credit?
A: Once a company determines that it qualifies for the credit, IRS suggests the following steps:
- Check with a tax professional.
- Use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.
- Check to see if the company’s home state has additional health care tax credits available to small employers.
For more information, see The Health Reform Law: What Employers Need to Know, from Thompson Information Services.