Small Business Health Insurance Tax Credit

October 16, 2017

Besides giving them a reason to stay with the business, providing health insurance to your employees can benefit you in other ways. Through the Affordable Care Act, small businesses can get real tax benefits when they offer health insurance to their employees.


What is the Small Business Tax Credit?

Under the Affordable Care Act, small businesses with less than 25 full-time employees can take a health care tax credit if they offer insurance to their staff and pay at least half the cost of the premiums.

This means that the federal government is essentially providing small businesses with a tax credit that pays half of their contribution to an employer-sponsored health care plan.

The tax credit may be available in addition to the tax deduction you may be able to receive for the money you pay towards employee premiums.

The small business health insurance credit was introduced to act as an incentive for business owners to provide health insurance and health benefits for their employees, but it comes with some very specific requirements.


Who Can Qualify for the Small Business Tax Credit?

To qualify for the tax credit businesses must have less than 25 full-time equivalent staff members. Full time equivalent means:

  • Employees maintain a full-tine schedule and work more than 3o hours a week in any given month of the year.
  • Employees must work more than 120 days per year.

This could mean someone you consider to be a part-time worker (for example, working less than 40 hours/week) could still qualify as a full-time equivalent unless they are a seasonal employee.

For example, if you hire someone who works 32 hours a week throughout the year they would qualify as a full-time equivalent staff member. However, if you hire someone who works 50 hours a week but only works during the holiday season they may not qualify.

In addition to this, a few other requirements for the small business health insurance include:

  • You must pay averages wages of less than $52,000/year (as of 2017).
  • You must pay at least 50% of your full-time equivalent qualified employee’s health care premium.
  • You must purchase your insurance coverage through the SHOP marketplace or through a licensed agent who can enroll you in SHOP health plans

*Note: As of 2017, the maximum wages you can pay to qualify increased from $50,000 to $52,000. This change has not been reflected in the image above.

Although the requirements for the tax credit are very specific, they are not very difficult to meet. However, many companies who qualify for credit are missing out on these savings. According to the U.S. Government Accountability Office, only 181,000 small business employees claimed their credit in 2014 when an estimated 1.4 to 4 million registered companies were qualified for the credit.

Even though more small business have started to claim their credits over the years since then, a surprising number of them still miss out on this opportunity each year. When thinking about enrolling in an employer-sponsored health plan, keep this tax credit in mind and discuss your options with one of our licensed insurance brokers to learn more and save!

All images from Google