The IRS is informing all small business owners of the possible eligibility you may have for the Small Business Health Care Tax Credits, which can give you more room to breathe, amongst other Small Business taxes you already pay. Your first question may be: How will this help my small business?
As you may already know, the maximum credit was 35% for premiums paid and if you’re, say, a small charity (tax-exempt), the maximum credit was 25% for premiums paid. What’s helpful to know is that credit changes have already taken effect since the beginning of 2014.
The following changes that have been made are:
- The maximum credit has increased to 50% of premiums paid for small business employers
- The maximum credit has increased to 35% of premiums paid for small tax-exempt employers
- This credit is given to eligible employers for 2 consecutive taxable years.
How would this work?
Well, let’s say that you pay $50,000 a year toward your employees’ health care premiums, but you qualified for a 20% credit, then you essentially save $10,000. Since you’ve been saving $10,000 a year from 2010 to 2013, you saved $40,000. If you happen to qualify for an even larger credit in 2014, say 30%, then your savings will go from $10,000 a year to $15,000 a year!
What if I did not owe any tax during a specific tax year?
You can actually carry the credit back and forward to other tax years that you did owe tax. The amount of health insurance premium payments are more than the total credit, so if you’re eligible for Tax Credit, then you can claim a business expense deduction for the premiums in excess of the credit. You get both credit and a deduction for your employees’ premium payments.
What if I’m a tax-exempt employer?
You may be eligible to receive credit as a refund as long as the refund does not exceed your income tax withholding and Medicare Tax Liability. This also means that you are subject to sequestration. So all refund payments processed on or after Oct. 1, 2014 and on or before Sept. 30, 2015 issued to a tax-exempt taxpayer claiming this Small Business Health Care Tax Credit will be reduced to a ‘sequestration’ rate of 7.3% in the year 2015 despite receipt of your original or amended tax return by the IRS.
So how do I know I’m eligible?
To keep this simple, I’ll list this one out for you:
- You must pay premiums on behalf of employees enrolled in a qualified health plan (QHP)
- Purchase coverage of QHP through a Small Business Health Options Program (SHOP Marketplace) OR if you qualify for an exception
- You must have fewer than 25 full-time employees
- You must pay an average wage of less than $50,000 a year
- You must pay at least half of the employee health insurance premiums
What if I forgot to claim it on my tax return?
You can still benefit from the credit only if you file an amended return on time. It is recommended to file within 3 years from the time the return was filed or 2 years from the time the tax was paid – whichever option expires later.
Which forms must I fill out?
Form 8941 calculates credit – Credit for Small Employer Health Insurance Premiums. Instructions for filling out Form 8941 are found here.
Are you a small business? If so, make sure to include the amount as part of the general business credit on your income tax return.
Are you a tax-exempt employer? If so, make sure to include the amount on line 44f of Form 990-T in order to claim credit – Exempt Organization Business Income Tax Return.
For more information about the credit, you can visit the Small Business Health Care Tax Credit Questions and Answers page.
Until Next Time, Be Audit-Secure!
Lisa Smith
About LISA SMITH
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