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Small Business Health Insurance Credit

The 2010 Patient Protection and Affordability Act created a tax credit to reimburse qualifying employers for up to 50% of health insurance premiums (this increased from 35% in 2014) paid for their employees.  The credit is called the “Small Employer Health Care Credit” and is calculated using Form 8941.  Although the credit can be quite substantial for employers who qualify, calculating the credit can be so confusing, complex, and time-consuming that many employers simply throw their hands up and abandon the credit entirely.  In this article, I’ll lay out a basic framework of the Small Employer Health Insurance Credit as it applies to businesses (the credit is also available to small tax-exempt employers, although the credit amount and rules are slightly different).  My goal is to cut through some of the confusion surrounding the credit to help employers decide whether or not to invest their time pursuing the credit.

Businesses that qualify for Small Employer Health Insurance Credit must meet three basic criteria:

There are four questions a business must answer to determine whether or not it qualifies for the credit. 

There are two other items to consider when determining whether or not a business qualifies for the tax credit:

One important item to note is the fact that many employers who qualify will not receive the full 50% credit.  The credit is skewed so only businesses who employee 10 FTEs or less who earn an average of $25,000 or less annually will receive the maximum credit.  The credit rapidly decreases once the number of FTEs exceeds 10, or the average wage exceeds $25,000.  The credit disappears entirely when there are more than 24 FTEs and/or an average annual wage equals or exceeds $50,000.

This article offers an outline to help business owners determine whether pursuing the Small Employer Health Insurance Credit is worth the effort.  As always, the tax information provided by this or any article should never replace professional tax consultation.  If you should have any questions regarding your business or personal taxes, please feel free to contact our office at (304) 267-2594 to speak with a tax professional.

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