The Small Business Health Care Tax Credit is set to increase in 2014. The maximum credit will be:
- 50% of the premiums small employers pay toward their employees’ health insurance premium (up from 35%);
- 35% of the premiums tax-exempt organizations pay for their employees’ health insurance premium (up from 25%).
Employers are only eligible if they purchase health insurance through the Small Business Health Options Program (part of the Affordable Care Act exchange system) and the credit will only be available for two consecutive tax years.
To be eligible for the credit, your company must:
- Employ fewer than 25 full-time equivalent (FTE) employees;
- Pay average annual wages of less than $50,000 per FTE, and
- Pay at least 50% of the premiums for FTEs’ health coverage.
Employers with less than 10 FTEs and average annual wages of $25,000 or less are eligible for the full credit. The credit then begins to phase out for larger and more highly compensated workforces.
To apply, employers must use Form 8941 to calculate their credit (instructions are available here). Non-tax-exempt employers can claim the credit as part of the general business credit on their income tax return. Tax-exempt organizations must use
Form 990-T (line 44f) to claim the credit.