The Small Business Health Care Tax Credit is established to encourage small businesses and tax-exempt organizations to provide necessary health care benefits to their employees. This tax credit was introduced in 2010 under the Affordable Care Act. Qualifying businesses and charities can claim this credit, thereby reducing your tax bill dollar for dollar. This credit is available to both first-time health care employers and employers who have provided health care to their employees in the past. Below are the qualification requirements for the tax credit:
Size of the company
To qualify for the Small Business Health Care Credit, a tax-exempt business or organization must have a maximum of 25 full-time employees or their equivalent. These employees need to earn on average, no more than $ 50,000. An organization whose size is greater than this threshold does not qualify for the credit. The IRS determines whether an employee works full time or not according to the definition provided by the Department of Labor. According to the Department of Labor, a full-time employee is an employee who works at least 30 hours a week for the same employer.
Credit to claim
For fiscal years 2010 through 2013, qualifying businesses can claim up to 35% of the health care premiums paid by their employees, while tax-exempt organizations can claim up to 25% of their health care expenses. employees. However, for 2014 and beyond, the credit amounts to 50% of premiums paid for qualifying businesses and 35% for qualified tax-exempt organizations.
The Small Business Health Care Credit is a non-refundable tax credit. Therefore, organizations and businesses that qualify to claim the credit can only use the credit against the taxes owed. These qualified organizations cannot obtain a refund check against credit. However, if a qualifying small business does not deplete all of its credit in the claim year, it can carry over the credit from 2010 to 2016.
Presentation of the claim
For a tax-exempt business or organization to successfully claim this tax credit, it must file Form 8941, Credit for Health Insurance Premiums for Small Employers. This form allows employers to list employees and premiums paid and calculate the qualifying credit they will claim for a given tax year. The qualified employer must also claim the final amount of the health care tax credit on Form 3800, General Business Credit as part of the General Business Credits.
It is also important that employers keep relevant documentation to support the claim in the event of an IRS audit. Supporting documentation includes receipts for premiums paid or a statement from your healthcare provider.