DECEMBER 2014 RETAILOBSERVER.COM
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ow will the credit make a difference for you?
For tax years 2010 through 2013, the maximum credit is 35
percent of premiums paid for small business employers and 25
percent of premiums paid for small tax-exempt employers such as
charities.
For tax years beginning in 2014 or later, there are changes to the credit:
• The maximum credit increases to 50 percent of premiums paid for
small business employers and 35 percent of premiums paid for small
tax-exempt employers.
• To be eligible for the credit, a small employer must pay premiums on
behalf of employees enrolled in a qualified health plan offered through
a Small Business Health Options Program (SHOP) Marketplace or
qualify for an exception to this requirement.
• The credit is available to eligible employers for two consecutive
taxable years.
Here's what this means for you. If you pay $50,000 a year toward
employees' health care premiums—and if you qualify for a 15 percent
credit, you save $7,500. If you save $7,500 a year from tax year 2010
through 2013, that's total savings of $30,000. If, in 2014, you qualify for
a slightly larger credit, say 20 percent, your savings go from $7,500 a
year to $10,000 a year.
Even if you are a small business employer who did not owe tax during
the year, you can carry the credit back or forward to other tax years. Also,
since the amount of the health insurance premium payments is more than
the total credit, eligible small businesses can still claim a business
expense deduction for the premiums in excess of the credit. That's both
a credit and a deduction for employee premium payments.
There is good news for small tax-exempt employers too. The credit is
refundable, so even if you have no taxable income, you may be eligible to
receive the credit as a refund so long as it does not exceed your income
tax withholding and Medicare tax liability. Refund payments issued to
small tax-exempt employers claiming the refundable portion of credit are
subject to sequestration.
For more information on sequestration, visit www.irs.gov/uac/Small-
Business-Health-Care-Tax-Credit-Questions-and-Answers:-Calculating-
the-Credit.
And finally, if you can benefit from the credit this year but forgot to
claim it on your tax return, there's still time to file an amended return.
Refund limitations may apply. Generally, a claim for refund must be filed
within 3 years from the time the return was filed or 2 years from the time
the tax was paid, whichever of such periods expires the later, or if no return
was filed by the taxpayer, within 2 years from the time the tax was paid.
For more examples of how the credit applies in different circumstances:
www.irs.gov/pub/irs-utl/small_business_health_care_tax_credit_
scenarios.pdf
CAN YOU CLAIM THE CREDIT?
Now that you know how the credit can make a difference for your
business, let's determine if you can claim it.
To be eligible, you must cover at least 50 percent of the cost of
employee-only (not family or dependent) health care coverage for each of
your employees. You must also have fewer than 25 full-time equivalent
employees (FTEs). Those employees must have average wages of less
than $50,000 (as adjusted for inflation beginning in 2014) per year.
Remember, you will have to purchase insurance through the SHOP
Marketplace (or qualify for an exception to this requirement) to be eligible
for the credit for tax years 2014 and beyond. Participating in the direct
enrollment process, such as the one adopted by federally-facilitated SHOP
Marketplaces, counts as SHOP Marketplace participation for 2014 only.
Let us break it down for you even more. You are probably wondering,
"What IS an FTE?" Basically, two half-time employees count as one FTE.
That means 20 half-time employees are equivalent to 10 FTEs, which
makes the number of FTEs 10, not 20.
Now let's talk about average annual wages. Say you pay total wages of
$200,000 and have 10 FTEs. To figure average annual wages you divide
$200,000 by 10 —the number of FTEs—and the result is your average
annual wage. The average annual wage would be $20,000.
Also, the amount of the credit you receive works on a sliding scale. The
smaller the business or charity, the bigger the credit. So if you have more
than 10 FTEs or if the average wage is more than $25,000 (as adjusted for
inflation beginning in 2014), the amount of the credit you receive will be less.
HOW DO YOU CLAIM THE CREDIT?
You must use Form 8941, Credit for Small Employer Health Insurance
Premiums, to calculate the credit. For detailed information on filling out
this form, see the Instructions for Form 8941.
If you are a small business, include the amount as part of the general
business credit on your income tax return.
If you are a tax-exempt organization, include the amount on line 44f of
the Form 990-T, Exempt Organization Business Income Tax Return. You
must file the Form 990-T in order to claim the credit, even if you don't
ordinarily do so.
Don't forget... if you are a small business employer, you may be able to
carry the credit back or forward. And if you are a tax-exempt employer,
you may be eligible for a refundable credit.
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