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Small Business Health Care Tax Credit can save U.S. small businesses as much as $40 billion

August 9, 2010

Employers hard-pressed to pay for employee health care are going to find some relief in the form of the Small Business Health Care Tax Credit. The tax credit is a provision in the Affordable Care Act signed into law by President Obama in March 2010 and is designed as an incentive for small employers to offer health insurance coverage to lower-income employees.

The tax credit goes into effect in 2010 and in intended for small businesses that pay for at least half of single health insurance coverage for employees. The Congressional Budget Office (CBO) estimates that U.S. small businesses can save as much as $40 billion in health insurance coverage costs by 2019.

Small Business Health Care Tax Credit Explained

Some of the key question and provisions regarding the tax credit are:

  • When is it available, and when does it expire? The tax credit starts in 2010 and runs through 2013. Businesses can claim the deduction for any two years after that date.
  • What is the benefit? The tax credit can be for as much as 35 percent of a small businesses health insurance premium cost in 2010. Starting on the first of January in 2014, the credit jumps to 50 percent.
  • What types of businesses are eligible for the tax credit? As many as 4 million small businesses throughout the U.S. are eligible to claim the credit if they provide health coverage for their employees. To qualify, businesses must have less than 25 full-time employees, pay annual wages to those workers less than $50,000 per employee, and pay at least 50 percent of their health insurance costs. Firms with less than 50 part-time workers are also eligible under the same guidelines.
  • What about non-profits? Non-profits also are eligible for the tax credit, but the tax credit slightly lower--25 percent. In 2014 the credit for non-profits jumps to 35 percent.
  • What about dental and vision insurance? Small businesses can receive the tax credit for add-on dental and vision insurance; however, the employer must pay at least 50 percent of the premium.
  • When can the credit be claimed? The credit first can be claimed on employers' 2011 tax returns and for subsequent years.

A complete list of questions and answers about the tax credit can be found on the Internal Revenue Service website.

The Small Business Health Care Tax Credit is intended to spur employer offerings of health insurance coverage to employees by offsetting the high costs of providing insurance, or to get them to maintain existing coverage. For example, if a company with 10 employees pays each of its workers $25,000 and spends $70,000 on health insurance premiums, the employer would receive a credit of $24,500 on its 2010 tax return.

The Internal Revenue Service in April mailed out more than 4.4 million postcards to U.S. small businesses alerting them to the tax credit. To determine if your business qualifies for the Small Business Health Care Tax Credit, consult with your tax professional.

Rob Sabo

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