Are you a small employer with fewer than 25 full-time equivalent employees? Do you pay an average wage of less than $50,000 a year, and pay at least half of employee health insurance premiums? If so, there is a tax credit available for 2015 that may put money in your pocket.
The Affordable Care Act, known as Obama Care, provides a tax incentive for small business owners who pay at least a portion of their employees' health insurance. In 2015, up to 50% of the employer's cost for worker health care premiums can be deducted as a small business health care tax credit. That's a dollar-for-dollar reduction in your tax bill.
How do you qualify for the credit?
- First, you must employ fewer than 25 full-time equivalent (FTE) employees. A half-time employee would count as a .5 FTE, so you must consider all workers in your calculation. The fewer FTE employees you have, the higher the tax credit percentage.
- Second, the average annual wages of your employees must be less than $50,000. To make the calculation, you would take your total wages and divide by the FTE number you figured above. In most cases, the owner's salary is not included in the formula.
- Finally, the business owner must contribute at least 50% of the total cost for single coverage. Family coverage is excluded. The policy must also be purchased through the Small Business Health Options Program, or SHOP to be eligible for the credit.
How do you claim the credit?
- The credit is available to eligible employers for two consecutive taxable years.
- If a small business doesn't owe tax for the current year, it can apply the credit to past or future years. In addition, the excess of the employer's actual cost of health insurance over and above the credit received can still be deducted as a business expense.
- To calculate and claim the credit, you must use Form 8491 - Credit for Small Employer Health Insurance Premiums. For detailed information on filling out this form, see the Instructions for Form 8941.
To learn more about the available small business health care tax credits and tax planning rules for 2015, contact Washington DC tax preparation firm Charles P Myrick CPA.