Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.
If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.
In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could also qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.
When you’re self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you’re not considered an employee for purposes of the credit.
Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).
For assistance in determining eligibility for this tax credit or for making the calculations to obtain the credit, contact Simons Bitzer at (317) 782-3070.