If you are a small employer and you sponsor a health plan for your employees, you might be eligible for a lucrative tax credit for tax years 2011, 2012 and 2013. As part of the Patient Protection and Affordable Care Act, Congress authorized this tax credit to help small businesses offset the costs of managing a health care plan for their employees.
How It Works
The IRS will refund up to 35% of premiums you pay toward your employer group Health insurance plan, in the form of a credit against your business income taxes. If your organization is tax-exempt, you may qualify for a credit of up to 25%.
To qualify for the credit, you must meet the following criteria:
- You must have fewer than 25 full-time equivalents.
- Your average worker must earn less than $50,000 per year from his or her employment with you.
- You must pay at least half the premium to cover your employees, although not your employees’ dependents.
If your business has fewer than 10 employees, and you pay them annual wages of $25,000 or less, you may be able to qualify for the full credit. The credit phases out as you add more employees, and pay them more, until it phases out completely at the 25 worker and $50,000 mark.
The IRS does not count leased employees, nor owners of sole proprietorships, partners, or shareholders with more than a 2% ownership interest in an S-corporation or a 5% interest in a C-corporation. The IRS also typically does not count family members against you for the purpose of determining your credit.
Limitations on Annual Premiums
The IRS has placed limits on the amount of annual premium you can apply towards the credit. However, the precise limits vary depending upon your state. For information specific to your state, or for businesses with operations in multiple states, please don’t hesitate to give us a call for a free consultation.
How to Claim the Credit
To claim the credit, fill out IRS Form 8941 – Credit for Small Employer Health Insurance Premiums, and submit it with your tax return for the year. Incidentally, the credit has been in effect since tax year 2010. If you would have qualified and simply weren’t aware of it then, or missed it, you may be able to claim the credit by filing an amended tax return for years 2010 and 2011. Be sure to speak to your a qualified tax advisor.