Small Business Health Care Tax Credit & Employer Health Insurance Tax Benefits

Official IRS & Government Resources on the
Small Business Health Care Tax Credit (§45R)

If you would like to review the actual law, IRS guidance, official forms, and government explanations of the Small Business Health Care Tax Credit, the resources below are a good place to start.

Many employers discover that the regular employer health insurance deduction under
IRC Section 106
provides greater long-term value than the temporary two-year Section 45R credit. For that reason, we encourage employers to review both tax provisions before making a final decision.

Four Qualifications
(worksheet)

1. The employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year,
2. The average annual wages of its employees for the year must be less than $50,000 per FTE, and
3. The employer must pay the premiums under a “qualifying arrangement” [Group Health Plan & Pay at least 50% of Employee Only Premium]   ^{IRS FAQ’s   Notice 2010-44     Notice 2014-06     and Notice 2015-08}  
4. The coverage must be through the  SHOP (Small Biz Health Options Program) exchange – FREE Agent Support!
   • Then just complete IRS Form 8941  ♦  Instructions  to get the credit.
     • 
   • NEW 2020 CA Flyers  Tax Credit  *  How to get credit *
     • On the other hand, my own CPA Bruce Bialosky feels that it costs more to file for the credit, than what it is worth.

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Commonwealth Fund – Explanations, Graphs & Analysis

IRS Instructions for form 8941
Credit for Small Employer Health Insurance Premiums

Eligible Small Employers

• 
• Simplified Tax Credit Instructions
• 1. You paid premiums for employee health insurance coverage under a qualifying arrangement.
• 2. You had fewer than 25 full-time equivalent employees (FTEs) for the tax year.
• 3. You paid average annual wages for the tax year of less than $54,000 per FTE.
• Employers treated as a single employer.   IRS.gov

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♦  H & R Block
♦  Efile.com

Understanding the Small Business Health Care Tax Credit 

The Affordable Care Act includes the small business health care tax credit, which can benefit small employers who provide health coverage for their employees. The small business health care tax credit benefits employers who:

• have fewer than 25 full-time equivalent employees
  • FAQ – what if you go over the limit?
• pay an average wage of less than $51,600 a year
• pay at least half of employee health insurance premiums

Here are some facts that will help you understand this tax credit and how it may affect your small business or tax-exempt organization:

• Credit percentage is 50 percent of employer-paid premiums; for tax-exempt employers, the percentage is 35 percent.
• Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
• For 2015, the credit is phased out beginning when average wages equal $25,800 and is fully phased out when average wages exceed $51,600. The average wage phase out is adjusted annually for inflation.
• Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit.  Transition relief from this requirement is available to certain small employers.

Small employers may still be eligible to claim the tax credit for tax years prior to 2014.   Employers who were eligible to claim this credit for prior years – but did not do so – may consider if they are still eligible to amend prior year returns in order to claim the credit. Gathering the following information will assist you in completing Form 8941, Credit for Small employer Health Insurance Premiums.  * Instructions

• SHOP QHP documentation or letter of eligibility from SHOP, unless transition relief applies
• Numbers of full-time and part-time employees and numbers of hours worked
• Average annual wages for employees
• Employer premiums paid per employee, if applicable
• Relevant K-1s and other pass-through credit information
• Cost of coverage for each employee
• Payroll tax liability – for tax-exempt organizations only
• Pass-through credit info – for K-1s of other small employers  ^{IRS.gov/aca.  IRS Tax Tip IRS Tax Tip 2016-56}
• irs.gov/health-care-tax-credit
• health care.gov/small-business-tax-credits
• health care.gov/qualify-for-shop-marketplace
• wikipedia.org/Small_Business_Health_Care_tax_credit 

The Small Business Health Care Tax Credit:

Do you own a small business or run a tax-exempt organization with fewer than 25 full-time equivalent employees? If  you do, the Small Business Health Care Tax Credit can help you provide insurance to your employees. You may be able to save on your taxes if you paid for at least half of their health insurance premiums. Here are seven tax tips about this credit:

1. Maximum Credit. The maximum credit is 50 percent of premiums paid by small business employers. The maximum credit is 35 percent of premiums paid by small tax-exempt employers, such as charities.
2. Number of Employees. You must have fewer than 25 full-time employees, or a combination of full-time and part-time employees. For example, two half-time employees equal one full-time employee for purposes of the credit.
3. Average Annual Wages.  For 2015, the average annual wages of your employees must have been less than $52,000. The IRS will adjust this amount for inflation each year.
4. Half the Premiums. You must have paid a uniform percentage, at least 50%, of the cost of premiums for all enrolled employees.
5. Qualified Health Plan.  Generally, you must have purchased a qualified health plan from a Small Business Health Options Program, or SHOP, Marketplace. There are limited exceptions to this requirement.
6. Two Year Limit.  As of 2014, an eligible employer may claim the credit only for two consecutive taxable years.
7. Tax Forms to Use.  Employers use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. Small businesses employers claim the credit on the annual income tax return. Small tax-exempt employers claim it on Form 990-T, Exempt Organization Business Income Tax Return.

If you are a small business employer and the 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 are a small tax-exempt employer, the credit is refundable, so even if you have no taxable income you may receive a refund (so long as it does not exceed your income tax withholding and Medicare tax liability for the year).