This tax season you may be hearing about the tax credit for small businesses that provides health care coverage for their employees. It was part of the health care legislation passed in 2010. Recent surveys have shown that the majority of small companies that might qualify for the credit have failed to take it. The reasons cited for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.
If your business might be eligible, it may pay for you to take another look at the requirements and be sure you’re taking advantage of this tax break.
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 that 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 who have fewer than 25 full-time (FTE) employees paying average annual wages of less than $50,000 per employee.
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, you’re not considered an employee for purposes of this credit.
Don’t fret thinking that you’ve missed this tax credit, though. If you’re like our vision care business clients and other health care offices, you are not eligible for the credit because you don’t offer your employees health insurance and you don’t pay any portion of their premiums. That’s the key—your business would have to spend on premiums in order to gain a tax credit. The law doesn’t require that small business owners offer health insurance much less pay any portion of it.
If your business does pay premiums, however, make sure your accountant calculates the tax credit. It’s there for the taking if your business is eligible. As this is tax time, I always remind my clients that it’s my job to help them pay only the amount of taxes they are responsible for after applying all the necessary tax credits—not a penny more!