Small Business Health Care Tax Credit

Posted: May 17, 2016  

The “ins” and “outs” of the Small Business Health Care Tax Credit

Once heralded as a savior for small business, the much ballyhooed tax credit, designed to reduce taxes for small employers, has been largely ignored for several reasons. Below is a list of “must do’s” in order to claim your tax credit. Some may seem cumbersome. Beware, it has also been reported that the cost of having your CPA prepare your tax credit request can exceed the actual tax credit itself.

Small business owners, in order to apply for this tax credit, here are the essentials:

  1. The employer must have fewer than 25 employees.
  2. Generally, you must buy your health plan from the Small Business Health Options Program (SHOP).
  3. The average annual wage for employees in 2016 must be less than $52,000.
  4. Employers MUST contribute at least 50% to employee premiums.
  5. The maximum credit is 50% of that premium paid by the employer.
  6. You may claim your tax credit using Form 8941.
  7. You may only claim the tax credit for two consecutive taxable years.
  8. If your credit is more than your tax liability for the year, you can carry the unused credit back or forward to other tax years.

If you own a small business that conforms to the qualifications listed above, consult your CPA. Here are the IRS’ answers to some FAQs.