Changes to the Healthcare Tax Credit for Small Business Employers

Blog
June 27, 2014

As small businesses work to keep up with the evolving state of healthcare in the U.S., recent tax changes may be a double-edged sword for employers. The good news is that the available tax credit, for plan years beginning after December 31, 2013, has increased from 35 percent up to 50 percent of premiums paid by small business employers. The bad news is that, to be eligible, plans must be offered through a Small Business Health Options Program Marketplace (i.e., through healthcare.gov or a state-run marketplace). A second new limitation is that the credit may only be taken for two consecutive years.

Other eligibility requirements remain the same. To qualify:

  • A small employer must have fewer than 25 full-time equivalent employees (e.g., two half-time employees count as a full-time equivalent employee).
  • The average wages for employees (excluding owners) must be less than $50,000 per year (total wages divided by the number of full-time equivalent employees).
  • The employer must pay at least half of the cost of the employees’ individual (not family) health insurance premiums.

For small employers who qualify, the credit can be a significant tax savings. For “flow-through” businesses, like a small medical practice partnership, the credit would flow through to the individual owners’ tax returns.

If the credit exceeds the 2014 tax liability, it may be carried back to a prior year for a refund or carried forward to reduce next year’s taxes. For employers who missed the credit in 2012 or 2013, a quick calculation may help determine if amending a prior year return to claim the credit would be worthwhile.

For more information, please contact your Aronson tax advisor or Ellen Boulle-Lauria of Aronson’s Professional Services Industry Group at 301.231.6200.