Every year, small business owners face the challenge of finding affordable healthcare coverage for their employees. The good news is that there is a tax credit available to those who meet specific criteria.
The Small Business Health Care Tax Credit was introduced by the Affordable Care Act (ACA) in 2010 to help small businesses provide health insurance to their employees. This credit is available to businesses with less than 25 full-time employees, and the average annual wage must be less than $50,000.
The credit is designed to be an incentive for employers to provide health insurance coverage to their employees. The amount of the tax credit ranges from 35% to 50% of the health insurance premiums paid by the employer, depending on the size of the business and the number of employees covered.
For businesses with 10 or fewer full-time employees, the credit can be as high as 50%. For businesses with 11 to 25 employees, the credit will be reduced but still is available. The maximum credit amount is based on a percentage of the average premium cost for the Small Business Health Options Program (SHOP) marketplace plans in the specific geographic area, and the employer must pay at least 50% of the cost of the employee-only coverage.
The tax credit may be claimed for up to two consecutive years by an eligible employer, commencing with the first year in which the employer purchases health insurance coverage through SHOP. Of note, the tax credit cannot exceed the total amount of the employer’s income tax liability. However, any unused credit may be carried forward to subsequent years.
This Small Business Health Care Tax Credit can result in significant savings for small businesses, particularly those with lower-wage workers. For example, a business with ten employees, each earning an average of $25,000 per year and paying $40,000 in annual health insurance premiums, would receive a tax credit of $20,000, covering half of their premium costs or 50%.
Moreover, some states may have additional tax credits or subsidies for small businesses, so it’s worth checking with your state to see if any such programs exist.
In summary, the Small Business Health Care Tax Credit is an excellent incentive for small businesses to provide affordable health insurance coverage to their employees. It’s a tax credit for small businesses that helps them save money while providing quality health insurance to their employees. Therefore, small business owners should consider taking advantage of this tax credit to help retain and attract employees while saving money in the long run.
