If you own a small business or run a tax-exempt organization with fewer than 25 full-time employees, the Small Business Health Care Tax Credit can help you provide insurance to your employees. If you paid for at least half of employee health insurance premiums, you may even be able to save on your taxes.
The following guidelines can help you determine whether your business qualifies for a health care tax credit and what you need to know about claiming it if your business does qualify:
• Maximum Credit. The maximum credit is 50 percent of premiums paid by small business employers. The maximum credit is 35 percent of premiums paid by small tax-exempt employers, such as charities.
• Number of Employees. You must have fewer than 25 full-time employees, or a combination of full-time and part-time employees. For example, two half-time employees equal one full-time employee for purposes of the credit.
• Average Annual Wages. For 2015, the average annual wages of your employees must have been no more than $52,800. The IRS will adjust this amount for inflation each year.
• Half the Premiums. You must have paid a uniform percentage (at least 50 percent) of the cost of premiums for all enrolled employees.
• Qualified Health Plan. Generally, you must have purchased a qualified health plan from a Small Business Health Options Program (SHOP) Marketplace. There are limited exceptions to this requirement.
• Two-Year Limit. As of 2014, an eligible employer may claim the credit only for two consecutive taxable years.
• Tax Forms to Use. Employers use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. Small business employers claim the credit on their annual income tax return. Small tax-exempt employers claim it on Form 990-T, Exempt Organization Business Income Tax Return.
If you are a small business employer, and the credit is more than your tax liability for the year, you can carry the unused credit back or forward to other tax years. If you are a small tax-exempt employer, the credit is refundable, so even if you have no taxable income, you may receive a refund as long as it does not exceed your income tax withholding and Medicare tax liability for the year.