The small business health credit allows a qualified small employer to claim a credit of up to 50% of the employer’s contributions toward employee health insurance premiums. The following requirements are required to claim the credit:
- The employer must provide health insurance coverage to its employees through a Small Business Health Options Program (“SHOP”).
- The employer must have no more than 25 full-time equivalent (“FTE”) employees for the taxable year.
- The average annual wages must be no more than $51,600 per FTE employee (for 2015, adjusted for inflation).
- The employer must pay at least half of the insurance premiums for the employees at the employee-only rate.
- The credit begins to phase out if the employer has more than 10 FTE employees and fully phases out at 25 FTE employees. Also, the credit begins to phase out at average annual wages per FTE employee of $25,800 (for 2015, indexed for inflation) and fully phases out at average annual wages per FTE employee of $51,600 (for 2015, indexed for inflation).
- The business can claim the credit on the first two consecutive years beginning with the first year the employer offers a qualified plan. Note that credits claimed prior to 2014 do not count towards the two-year limit.
- The employer must reduce the income tax deduction for the health insurance premiums paid by the amount of the credit claimed.
- The credit is a general business credit that can be carried back or forward to the extent not used (if the credit is not used at the end of the carryover period, you may deduct the amount in that year).
- The credit is available to offset both regular income tax and alternative minimum tax.
Take all the credits you’re entitled to
If you’re not sure whether you’re eligible for this credit, contact me at firstname.lastname@example.org or your Berdon advisor, we can help. We can also advise you on what other tax credits you might be eligible for when you file your 2015 return.
Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.