Small Business Health Care Tax Credit
Key Takeaways
- The Small Business Health Care Tax Credit provides up to 50% of premiums paid for small businesses and 35% for non-profits.
- Eligibility requires fewer than 25 full-time equivalent employees and an average annual wage below $55,000, as of 2024.
- The credit amount is based on a sliding scale, with smaller employers receiving a larger credit.
- The credit can be claimed for two consecutive years and carried back or forward.
- Calculating the credit requires completing Form 8941 to determine eligibility and the credit amount.
Overview
The Small Business Health Care Tax Credit (HealthCare.gov) helps businesses like yours save on employee health plans.
It’s intended to provide a direct cash incentive for employers to offer a group health insurance plan to their employees and offset any costs involved in starting a new employee health plan.
This can be a big help for small businesses.
It can cover up to 50% of health insurance costs for employees at small businesses or up to 35% for tax-exempt organizations. tax. However, it’s only available to companies with fewer than 25 full-time employees, or the equivalent. It’s also only available for two consecutive years.
What is the Small Business Health Care Tax Credit?
The Small Business Tax Credit essentially makes health coverage cheaper for small businesses with fewer than 25 full-time workers to provide a health plan for their employees.
If you qualify, you can get a federal tax credit for up to 50% of what they pay for their employee’s health insurance.
For tax-exempt, non-profit entities, you can get a federal tax credit for up to 35% of the costs of setting up an employee group health plan. The idea is to support small businesses in providing health insurance. This credit eases the financial burden, and helps small businesses protect critical cash flows early on.
Small Business Health Care Tax Credits vs. Tax Deductions
Tax credits are more valuable than tax deductions.
Tax credits like the Small Business Health Care Tax Credit directly reduce taxes dollar for dollar. This is preferable to having a tax deduction, which merely reduces taxable income.
Small Business Health Care Tax Credit Eligibility
To be eligible for the Small Business Health Care Tax Credit, you should have fewer than 25 full-time workers and pay an average yearly wage under $55,000 as of 2024. The smaller your business, the bigger the tax credit you can get.
Additionally, your business must pay at least 50% of plan premium costs for employees.
The exact credit amount will depend on the number of employees and the cost of their group health insurance premiums.
| Criteria | Requirement |
|---|---|
| Number of Employees | Fewer than 25 full-time equivalent employees |
| Average Annual Wage | Under $55,000 per employee (as of 2024) |
| Premium Costs | Employer pays at least 50% of employee premiums |
| Coverage | Employer offers SHOP coverage to all full-time employees |
How to Get the Small Business Health Care Tax Credit
If you qualify, getting this credit is not hard.
First, figure out your number of full-time equivalents and the average wage. Then, use Form 8941 to see how much you can get. You can even use the credit in the past or save it for the future, which is very flexible.
How to Calculate Full-Time Equivalents
The amount of credit depends on full-time equivalent (FTE) employees and the average annual wages of those employees.
To calculate your FTEs, add all hours worked in a year by your team and divide by 2,080. This gives you the full-time equivalent number.
Divide the total wages by the FTE number to get the average wage.
How to Claim the Small Business Health Care Tax Credit
After figuring out your eligibility and credit amount, you’ll use IRS Form 8941 to claim the credit.
This form asks for details about your business and health insurance costs. You also list the number of FTE workers and their average wages.
Refundable for certain tax-exempt employers
If a non-profit qualifies for the Small Business Health Care Tax Credit, it’s even better.
The credit might be more than what they owe in taxes. In this case, they can get the extra money back as a refund.
Do Health Sharing Plans Qualify?
No.
Under current law, employers must purchase a qualifying SHOP group health insurance plan in order to qualify for the Small Business Health Care Tax Credit.
I have seasonal workers? Are they counted as FTEs?
No. Unless they work for you more than 120 days a year, seasonal employees are not counted as seasonal employees.
Compare Pricing on the Best HealthShare Plans Available
What to Do Now
Small business employee benefits can be complex, especially if you’re brand new to plan sponsorship.
But that doesn’t mean you need to stress about it. With the right help, it’s not difficult at all. Make an appointment for a consultation with an HSA for America Personal Benefits Manager today.
Working with a Personal Benefits Manager and having them help you custom-design an affordable benefits package to suit your budget and workforce costs you nothing. Our fees are paid by the insurance companies, health sharing ministries, and other vendors we represent.
For Further Reading: IRS Small Business ACA Page | The Small Business Owner’s Guide to Starting a Section 125 Cafeteria Plan | Affordable Group Health Insurance: A Guide for Small Businesses
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