Tax Time: Does Your Business Qualify for a Health Care Tax Credit?

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Booksellers who have been providing health insurance to their employees should remember that the Affordable Care Act includes federal tax credits for small businesses. Store owners and managers should be sure to discuss health care tax credits with their tax professionals.

The health insurance tax credit guidance, located on the website, includes a one-page form and instructions on how to claim the credit for the 2014 tax year. The relevant form is number 8941, “Credit for Small Employer Health Insurance Premiums.” The IRS also has an Affordable Care Act informational page, which is designed to help small employers correctly calculate and claim the credit.

For a business to qualify for the tax credit, all of the following must apply:

  • You have fewer than 25 full-time equivalent (FTE) employees.
  • Your average employee salary is less than $50,000 per year.
  • You pay at least 50 percent of your full-time employees’ premium costs.
  • You offer coverage to your full-time employees through the SHOP Marketplace.

Booksellers can also use the Small Business Health Options Program (SHOP) Health Care Tax Credit Estimator to determine if their businesses qualify for the Small Business Health Care Tax Credit, and, if so, to estimate the amount of credit they may receive.

For tax years beginning in 2014 or later, the following changes to the credit apply:

  • The maximum credit increases to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
  • The credit is available to eligible employers for two consecutive taxable years.

Importantly, small business employers who find out that they can benefit from the credit but who did not claim it on their tax return can still file an amended return. The IRS stipulates that generally a claim for refund must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires later, or if no return was filed by the taxpayer, within two years from the time the tax was paid.

Small business employers who did not owe tax during the year can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

The Small Business Majority also provides an FAQ to help answer small business owners’ questions regarding the tax credits.