Understanding Small Business Health Care Deductions

Health insurance premiums can be very expensive for a small business. To offset some of that expense for small businesses, The Affordable Care Act provides a small business health care tax credit. The tax credit can reduce the cost of employee health coverage for a small business. If you need assistance with this small business tax deduction or other tax deductions to reduce your tax liability, you can get more information from a Maryland business attorney.

Can My Small Business Take Advantage of the Small Business Health Care Deduction?

Your small business may qualify for the Small Business Health Care Tax Credit if your business meets the following requirements:

·      Your company employs fewer than 25 full-time equivalent(FTE) employees. 

·      The average employee salary is approximately $50,000 or less per year. The amount is indexed each year for inflation. The amount for 2017 was $53,000.

·      Your company pays at least 50 percent of the health insurance premiums for full-time employees for employee-only coverage.

·      You offer a qualified health insurance plan through SHOP (Small Business Health Options Program) Marketplace to all full-time employees.

How Much Does the Tax Credit Equal?

The tax credit your company may receive is based on a sliding scale. Small businesses with fewer than 10 employees and average wages of $25,000 or less per year to full-time employees receive the highest tax credit. Your tax credit increases as the size of your business decreases.

Employers may receive a health care tax credit of up to 50 percent of the cost the employer pays for health coverage for its employees. Non-profit small businesses may receive up to a 35 percent tax credit. 

Another benefit of the health care tax credit for small businesses is that it can be carried forward or carried back for other tax years if you do not owe taxes during the current tax year. In addition, the small business benefits twice because it can claim the health care tax credit and it can claim a business expense for the health insurance premiums it pays over the credit it receives.

The health care tax credit is refundable. Therefore, if your business had no taxable income and your business is tax-exempt, the tax credit may be paid as a refund. However, the refund cannot exceed your Medicare tax liability and income tax withholding. 

Employers may receive a health care tax credit of up to 50 percent of the cost the employer pays for health coverage for its employees.

Claiming the Small Business Health Care Tax Credit

To claim the credit for employee health coverage, you must complete IRS Form 8941 to calculate the credit. A small business includes the amount in the general business credit on its income tax returns. A tax-exempt organization should include the tax credit on Form 990-T, which must be filed to claim the tax credit.

Get Trusted Advice From A Maryland Business Attorney

Tax credits for small businesses can be confusing. Contact Thienel Law today to demystify the Small Business Health Care Tax Credit. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.