Healthcare Reform 2014: Small Business Health Tax Credit

By David Dawley, Abshier House

Under the Affordable Care Act (ACA), many small businesses and tax-exempt organizations that offer their employees benefits will receive a temporary tax credit. This credit, the Small Business Health Tax Credit, is meant to encourage employers to either maintain insurance coverage for their employees or offer coverage for the first time. The credit is designed to target and benefit those small businesses that employ low- and moderate-income workers.

Who is eligible for the credit: The level of credit is largely dependent on the size of business, the annual salary of workers, and the percentage of employee insurance costs paid by the company. According to the IRS, the basic credit can be claimed by those small businesses that have 25 or fewer full-time employees, and those employees are paid an average of $50,000 or less per year.

The maximum credit can be claimed by those small businesses having 10 or less employees, paid an average of $25,000 or less per year. Firms with more than 25 employees are not eligible for the credit.

Approximate size of the tax credit: The maximum size of the temporary Small Business Tax credit is 35 percent of the employee premiums paid for the year.

Changes are expected in 2014: In 2014, the credit will increase to 50 percent of the employee premiums paid in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace. The credit may be carried forward or backward to other tax years for employers who do not owe taxes in the year the credit was earned.

Credit availability: As of March 23, 2010, the temporary tax credit is available to small businesses for six years with a gradual phase-out as employee numbers and salaries rise.

How does a small businesses claim the Small Business Tax Credit of 2010: Small businesses may claim the credit as part of the general business credit beginning with the 2010 income tax return they file in 2011. Some businesses will be eligible to take advantage of the credit, as well as claim part of the employee premium costs as an expense, increasing their tax deductions.