Tax Credit Covers Up To 35 Percent of Small Business Health Care Contributions
Today, many small businesses struggle to provide group health plans to their employees. On average, small businesses pay about 18 percent more than large businesses for the same health insurance policy. The Affordable Care Act (ACA) helps level the playing field by lowering costs for small businesses and increasing their bargaining power. At the same time, small business owners will have the flexibility to make choices they believe are right for their business and their employees. Starting in 2014, firms with up to 100 workers can pool their buying power and reduce administrative costs by purchasing insurance through a the Health Insurance Exchange in each state. And the Congressional Budget Office predicts that, thanks to the Affordable Care Act, premiums in the small group insurance market will decrease 1 to 4 percent by 2016.
To make health insurance more affordable for small businesses, the new law also includes tax credits for many small businesses that offer coverage to their workers. Starting in 2010, small businesses that have fewer than 25 employees, pay average annual wages below $50,000, and pay for most of their employees' health coverage may qualify for a tax credit of up to 35 percent of health expenses. The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019. Both for-profit and nonprofit organizations may qualify for the tax credit.
New Guidance for Small Business Health Care Tax Credit
Gives Small Employers Full Set of Tools to Claim Credit for 2010. The new guidance includes all the tools small businesses need to claim the credit when they file their 2010 taxes, including the one-page form (Form 8941) and instructions used to claim the credit for tax year 2010, as well as the remaining guidance for 2010. All of this information is now available at www.irs.gov
Getting the Word Out about small Business Health Care Tax Credit
To ensure that small businesses know about the credit and how to claim it, the Administration has undertaken a nationwide educational campaign to reach small employers and their tax preparers. WhiteHouse.Gov, HealthCare.Gov , and IRS.Gov all feature special sections on the credit, including tax tips, detailed frequently asked questions and a worksheet to help small business owners determine whether they qualify.
Facts About the Small Business Health Care Tax Credit
Available Immediately. Enacted as part of the Affordable Care Act, the credit was effective January 1, 2010. As a result, small businesses currently providing health care for their workers receive immediate help with their premium costs.
Broad Eligibility. The Council of Economic Advisors estimates that 4 million small businesses are eligible for the credit if they provide health care to their workers.
Substantial Benefit. The credit is worth up to 35 percent of a small business's premium costs in 2010 and in each of 2011, 2012, and 2013. In 2014, this rate increases to 50 percent.
Firms Can Claim Credit for Up to 6 Years. Firms can claim the credit for 2010 through 2013 and for any two years after that.
Non-Profits Eligible. Tax-exempt organizations are eligible for a 25 percent tax credit in 2010 and in each of 2011, 2012, and 2013. In 2014, this rate increases to 35 percent.
Gradual Phase-Outs. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Premium Cost Eligibility. To avoid an incentive to choose a high-cost plan, an employer's eligible contribution is limited to the average cost of health insurance for small businesses in that state.
Dental and Vision Coverage Qualify. Small businesses can receive the credit not only for traditional health insurance coverage but also for add-on dental, vision, and other limited-scope coverage.
Employers Can Choose the Most Favorable Method of Determining Hours Worked. Because the tax credit's matching rate is highest for employers with 10 or fewer full-time equivalent employees (FTEs), the number of hours worked is an important factor in calculating the credit. Employers can choose among three different methods of determining hours to minimize their bookkeeping duties while receiving the maximum tax credit for which they are eligible. Employers can look at actual hours of service, or can use simple rules of convenience to estimate hours based on total days or weeks of service.
