Small Businesses Tax Credit
As employers with 50 or more full-time employees (or their equivalent) prepare for the regulations of the employer mandate, some small business owners are also considering offering coverage to their full-time employees. Despite the employer mandate not applying to small businesses with fewer than 50 full-time employees (or their equivalent), the federal government has implemented tax credits as an incentive for small businesses to offer health insurance to their full-time employees. Offering health insurance for small businesses is costly. The Obama administration hopes tax credits alleviate some of those costs. Employers with fewer than 25 full-time employees or their equivalent may be eligible to qualify for a Small Business Health Care Tax Credit under the Affordable Care Act. Since January 1, 2010, small business owners have been eligible to qualify for up to a 35% tax credit. Beginning in 2014, tax credit rates will increase up to 50% of an employers’ contribution to health insurance premiums.
There are 4 requirements an employer must meet in order to be eligible to qualify for tax credits:
- Employ fewer than 25 full-time employees or their equivalent.
- Annual average wages of each full-time employee (or equivalent) is about $50,000 or less.
- Cover at least 50 percent of full-time employees’ health care costs.
- Offer health coverage from the Small Business Health Care Program (SHOP) Exchanges.
When counting employees to qualify for tax credit, business owners with part-time workers should combine their part-time employees to equal full-time equivalent employees. For instance, if an employer has 20 part-time employees, working 15 hours on average each, then those employees are equivalent to 10 full-time employees. If an employer has 50 part-time employees, working 15 hours on average each, then that employer is not eligible for a tax credit because their full-time equivalent count is 25. As you count your employees, sole proprietors, partners in a partnership, two percent or more owners of S-Corps,or any five percent or more business owners (for tax credit purposes only) are not included in your total count of fewer than 25 full-time employees or their equivalent. If you have any questions on tax credit or need help determining if your business may be eligible to qualify for tax credits give us a call. We will gladly guide you.