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One of the ways in which the Affordable Care Act helps bring down costs for small employers is through the tax credit available to eligible small businesses that provide health care insurance to their employees. The credit significantly offsets the cost of providing insurance and with the 2012 corporate tax filing deadline rapidly approaching (March 15th), you don’t want to let this valuable tax break pass you by.


What is the Small Business Health Care Tax Credit?


Currently the maximum tax credit is 35% for small businesses employers and 25% for small tax-exempt employers (i.e. charities and non-profits). This percentage applies to tax years 2010 through 2013. Even better, in 2014 the credit will increase to 50% for eligible small business employers and up to 35% for tax-exempt employers through the new Small Business Health Options Program (SHOP) Marketplace (also known as the Exchange).


The credit can also be carried back or forward to other tax years. Since the amount of the health insurance premium payments are more than the total credit, eligible businesses can still claim a business expense deduction for the premiums in excess of the credit.  That equals out to both a credit and a deduction for employee premium payments.


Who Qualifies for the Small Business Health Care Tax Credit?


To qualify for the credit, you must meet the following criteria:


  • You must cover at least 50% of the cost of single (not family) health care coverage for each of your employees


  • You must have fewer than 25 full time equivalent employees (2 half-time workers count as one full timer)


  • Those employees must have average wages of less than $50,000 a year


To help determine whether you qualify for the credit, follow this step by step guide from the IRS.


How to Claim the Credit


You must use the IRS Form 8941 to calculate the credit.. Then include the credit amount as part of the general business credit on your income tax return. If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T. You must file the Form 990-T in order to claim the credit even if you do not ordinarily do so. Remember, you may be able to carry the credit back or forward. Be sure to talk to your tax advisor for more assistance.

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