While the cost of health insurance is skyrocketing, your small business might be eligible for a health insurance tax credit. If you qualify, you can use this credit when budgeting for the cost of insurance for the entire year. This makes providing benefits more feasible for smaller companies, as well as allowing you to potentially provide better benefits for employees than you might otherwise be able to afford.

What Is The Benefit Tax Credit?

The Small Business Health Care Tax Credit is not an unlimited tax credit. In fact, it ends after the calendar year 2013. Qualified businesses can deduct as much as 35 percent of the cost of their employee health care costs from their taxes. Different types of businesses qualify for a greater or lesser deduction depending on a number of factors. Even small business owners who do not have to pay tax for a certain year can carry the tax credit forward to later years when they are required to pay taxes. Tax-exempt employers might qualify for a refundable tax credit.

Does Your Business Qualify?

Before telling you whether or not your business might qualify, it’s important to state that if you are in any doubt you should consult with a qualified accountant or tax attorney. Here are some basics:

  • To qualify, you must cover at least 50 percent of the cost for individual health care coverage for each employee for the calendar year in question. Covering 50 percent of a family health insurance plan doesn’t count.
  • You must have less than 25 full-time employees working for you that year.
  • Your employees must have an average wage of less than $50,000 per year.
  • Half-time employees count as literally half of one employee, so a business with 50 half-time employees would also qualify.
  • The smaller the business, the larger the credit.

You must meet all of the above criteria to qualify for the tax credit. Again, if you are in any doubt you should talk to a qualified tax professional before you file to avoid having to pay penalties and fines for claiming a tax deduction you are not actually entitled to. The IRS also provides a guide on its website to help you figure out if you qualify.

Claiming the Credit

Claiming the tax credit associated with health care costs requires you to fill out IRS Form 8941. Tax-exempt non-profits should refer to Form 990-T. The total amount you may be credited as a for-profit business is entered in with all other tax credits. For non-profits the amount goes on line 44f of the aforementioned form. Even if your non-profit doesn’t generally file a 990-T you must file this to be able to claim the credit.

Businesses of any kind can pocket the credit or pass the savings along to their employees in the form of better employee benefits. Regardless, there’s no reason to pay more in taxes than you need to.

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