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Health Care Tax Credit: Is Your Business Eligible?

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Small businesses and tax-exempt organizations with 25 or fewer employees are eligible for a health care tax credit. If your business/organization meets these requirements, it will be a welcome relief at tax time.

For all businesses and organization with fewer than 25 employees:

Businesses and tax-exempt organization with 25 or fewer, full-time equivalent workers with average wages of $50,000 or less (adjusted annually for inflation beginning for 2014), and that pay at least half (50%) of the premiums for employee health insurance coverage are eligible for the Small Business Health Care Tax Credit.

Your Small Business Health Care Tax Credit, which started in 2014, is worth up to 50% of your contribution toward employees' premium costs (up to 35% for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid average wages of $25,000 or less. The smaller the business, the bigger the credit is.

Note: The credit is available only if the employees are enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exception to this requirement. The credit is available to eligible employers for two consecutive taxable years.

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. In addition, because the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit -- in other words, both a credit and a deduction for employee premium payments.

The credit is refundable for small tax-exempt employers as well, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Past tax credit history

For tax years 2010 through 2013, the maximum credit was 35% for small business employers and 25% for small tax-exempt employers, such as charities.

Businesses that have already filed and later find that they qualified in 2013 or an earlier year can still claim the credit by filing an amended return for the affected years. A three-year statute of limitations normally applies to these refund claims.

Additional tax on businesses not offering minimum essential coverage:

Effective January 1, 2015, an additional tax will be levied on businesses with 100 or more full-time equivalent (FTE) employees that do not offer minimum essential coverage. However, it will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees.

Employers subject to the employer responsibility provisions in 2015 must offer coverage to at least 70% of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95%. This begins in 2016.

Note: This penalty is sometimes referred to as the Employer Shared Responsibility Payment.

You may have to pay this additional tax if you have 50 or more full-time equivalent (FTE) employees and at least one of your full-time employees gets lower costs on their monthly premiums through the Marketplace.

Note: Employers with fewer than 50 FTE are considered small businesses and are exempt from the additional tax.

The amount of the annual Employer Shared Responsibility Payment is based partly on whether you offer insurance. If you don't offer insurance, the annual payment is $2,000 per full-time employee (excluding the first 30 employees for business with 50 to 99 full-time employees and excluding the first 80 employees for those with 100 or more full-time employees).

Note: For purposes of this calculation, a full-time employee does not include a full-time equivalent.

If you do offer insurance, but the insurance doesn't meet the minimum requirements, the annual payment is the lesser of $3,000 per full-time employee who qualifies for premium savings in the Marketplace or $2,000 per full-time employee (minus 30 full-time employees for businesses with 50 to 99 full-time employees and minus 80 full-time employees for businesses with 100 or more full-time employees).

Note: Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax-deductible.

A health plan meets the minimum value if it covers at least 60% of the total allowed costs of benefits provided under the plan. To determine whether other coverage meets minimum value, please contact us for assistance.

Note: All plans in the Marketplace meet minimum value, so any coverage offered through the SHOP Marketplace should qualify.

Excise tax on high cost employer-sponsered insurance

Effective in 2018, a 40% excise tax indexed for inflation will be imposed on employers with insurance plans where the annual premium exceeds $10,200 (individual) or $27,500 (family). For retirees age 55 and older, the premium levels are higher: $11,850 for individuals and $30,950 for families.

Executive summary

As with all things associated with the Affordable Care Act, changes will occur. Therefore, it is important for you to check with a tax professional on the information listed above.

For more information about the health care tax credit, contact Sonia Phillips via email, or Cindy McSwain using her information below.

Cindy McSwain

Senior Vice President,
Outsourcing Services
Cindy McSwain leads AGH’s outsourcing services group. Her team provides payroll, accounting, funds disbursement, controller, and other financial outsourcing services to numerous clients throughout the U.S. Prior to directing the outsourcing group, Cindy served AGH’s audit clients for 10 years, working with a wide range of middle-market, closely held and family-owned clients.

Her current clients cross many industry sectors, including manufacturing, distribution, restaurants, retailers, medical, and not-for-profit. She has participated in numerous SEC filings and public registrations and has experience in mergers and acquisitions. Cindy is a certified public accountant and a member of both the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants.
Cindy McSwain
Cindy McSwain
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