A Quick Guide on Filing for The Small Business Healthcare Tax Credit

on February 23, 2018
What is the small business health-care tax credit?

This tax credit was created under the Patient Protection and Affordable Care Act (PPACA) in order to give small businesses and tax-exempt organizations a break on the cost of group health insurance for their employees.

According to the Journal of Accountancy, this tax credit is specifically meant for employers with low to moderate-income employees.

According to the IRS, the small business health-care tax might apply to you if:

Your business may qualify for the health-care tax credit if:

  • You have fewer than 25 full-time employees
  • You pay for at least half of their health insurance premiums
  • You paid an average wage of less than $52,000 a year in 2017

There are of course complexities that go beyond these three qualifications. You can read more about the small business health-care tax here.

Tips for applying filing for the business tax credit

Filing for the small business tax credit can be complicated and confusing, but breaking the process up in steps can make it a little easier:

  • Calculating average wages and insurance premiums paid will let you know if you qualify before filing for business tax credit. You can do this yourself, or have an accountant or CPA calculate these numbers for you. This will quickly tell you whether or not you qualify for the small business health-care tax credit.
    • In order for a plan premium to count towards the tax credit, it must be a qualified health plan (QHP) and offered through a Small Business Health Options Program (SHOP Marketplace).
    • Contributions to health savings accounts (HSAs) and flexible spending accounts (FSAs) do not count towards the premium, and therefore should not be added to calculations for the credit.
    • Only the portion of the premium that the employer pays is counted in calculating the credit.
  • The next step in filing is getting the forms you need to claim the small business tax credit. According to the IRS, you will want to fill out Form 8941 to attach to your income tax return. This form is where you will put your calculations for the tax credit.
    • If you are planning filing for business tax credit in order to help with your insurance premiums, it may help to have some information on hand:
      • Proof of eligibility of your premiums (documents from SHOP)
      • Number of both full- and part-time employees and the hours they worked
      • Average annual wages for all employees
      • Premiums you paid per employee
      • Cost of coverage per employee
      • Payroll tax liability (for tax-exempt applicants only)

More things to know about the small business health-care tax credit

There are a couple extra details you may want to know about filing for this tax credit, but keep in mind that consulting a tax or legal advisor for advice on this tax credit or any other is the best way to make sure you have everything in order. According to the IRS:

  • Receiving the credit will affect the amount you can deduct from your health insurance premiums. You still can apply the tax deduction and the tax credit to the same premium payments, but the deduction will be lower since it is based on the premiums after the credit is applied.
  • A tax-exempt employer can still claim the tax credit, even if they have no taxable income for that year. But the credit is limited to the amount of tax-exempt payroll taxes withheld that year.

Taking advantage of the small business health-care tax credit

Although going through the paperwork and documentation for calculations can be a bit of a headache, taking advantage of the tax credit could save you money on health-care. Make sure to take advantage of opportunities like this, which make it easier for you to buy health insurance for your employees.  If you don’t have group health insurance for your small business, but want to start looking, visit eHealth.com where you’ll find free quotes and price comparisons from hundreds of insurance companies.

This article is only for general information and is not tax or legal advice. Consult your tax or legal advisor for guidance.