The Affordable Care Act (ACA or Obamacare) has dominated business headlines for several years now. However, despite all the discussion, few know much about it. There will surely be some growing pains as implementation ramps up in the final quarter of 2013 and goes into full effect the first part of next year.
We at Armel Tax hope to take some of the uncertainty out of the equation. As small business tax specialists, we can either answer questions regarding how the ACA affects your business or refer you to sites and resources to help you and your employees get better informed. Today, we want to discuss the Small Business Health Care Credit.
What is the Small Business Healthcare Credit?
Part of the healthcare reform effort included an effort by the government to encourage owners of small businesses to provide health insurance for their employees. As a result, the ACA includes a provision that provides for a tax credit for businesses that meet certain criteria. Beginning in 2014, the tax credit will cover approximately 50% of qualified healthcare expenses for tax paying entities and 35% for any eligible tax exempt organizations. Most often, this will be a 501c organization.
Who qualifies for the Small Business Healthcare Credit?
There are 3 key qualifications that the business in question must meet in order to qualify.
The business must have less than 25 full-time equivalent employees. It is important to note that 50 part time employees counts as 25 full time employees.
The average wage of employees must be less than $50,000 per full-time equivalent employee. This must be adjusted for inflation beginning in 2014.
To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace. These are also known as exchanges, and they open on 10.1.13
The employer must pay at least 50% of the employees premium costs
As with anything that involves the IRS, there are additional rules and regulations. For example, premiums paid on behalf of the business owner do not count toward the credit. The employer only needs to pay 50% of the employee’s premium. The employee is responsible for paying the total premium for any covered dependents.
The good news is that since the amount of health insurance premiums will exceed the amount of the credit, the business owner can still claim a deductible business expense. Further, even if the business has no taxable income, it can still qualify to receive the credit as a refund as long as it does not exceed the tax withholding and Medicare liability.
We cannot stress enough how significant these issues can be. Armel Tax is qualified and ready guide you through these issues and answer any questions you might have. Please contact us for a free consultation today.
Here are some additional resources for more in depth questions regarding the Small Business Healthcare Credit.