Health Insurance Tax Credit For Small Business

Health Insurance Tax Credit for Small Business

Small businesses have traditionally been unable to offer health insurance benefits to employees. The primary culprit preventing small businesses from offering this particular benefit was the high costs involved in doing so. The Affordable Care Act, however, has made a few changes that make offering insurance to employees a more affordable option — even for the smallest of businesses. Health Insurance CO-OPs, the Small Business Health Options Program (SHOP), are health insurance tax credits are just some of the changes which are opening the health insurance doors that have been closed to small business owners in the past. What’s So Powerful About the Combination?
Health Care CO-OPs and tax credits, by themselves, would still not be enough to make offering employer insurance feasible for many small businesses. The combination, however, of affordable insurance alternatives such as CO-OPs with tax credits, makes the situation more tenable for small businesses that operate at marginal profits in order to stay afloat as it is. What Businesses are Eligible for Health Insurance Tax Credits?
There are several requirements that must be met in order for employers to be eligible to receive tax credits for offering health insurance. According to Aetna, these conditions include:

• Cannot employ more than 25 full-time equivalent employees in a taxable year
• Employer must cover a minimum of 50 percent of the coverage cost for employees
• Average annual wages cannot exceed $50,000
• Qualifying agreement must be maintained

In 2010, the maximum tax credit was 35 percent. That number will change to a maximum of 50 percent in 2014. However, extremely small businesses with 10 or fewer full-time employees and average annual wages lower than $25,000 stand to benefit most from the small business tax credit says the Small Business Administration. The goal, of course, is to provide the greatest support and assistance to low and moderate income workers.
The IRS also points out that if you did not owe taxes during the year, you are eligible to carry the credit forward or back to other tax years. Information Worthy of Note
The National Federation of Independent Business, NFIB, points out that there are several limitations business owners need to be aware of with the health care tax credit. First of all, business must pay at least fifty percent of the health insurance premiums for their employees in order to qualify for the tax credit.
Second, most businesses that do receive the tax credit will not be awarded the maximum amount. Not only are small business owners excluded from the tax credit (and exclusion in the calculations of wages), but also the owners’ family members including children, foster children, siblings, step siblings, spouses, certain cousins, and in-laws.
Because figuring tax credits and understanding benefits such as these is so complex, the NFIB also highly recommends that business owners consult with their accountants before determining their best courses of action.

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