Small businesses are always looking for ways to increase their bottom lines, but some are unaware of a federal tax credit that can put money in their pockets.

According to the IRS, you could benefit from the small business health care tax credit if your business

  • has fewer than 25 full-time equivalent employees
  • pays an average wage of less than $50,000 a year and
  • pays at least half of employee health insurance premiums.

To be eligible for this credit, you must have purchased these employee benefits through the Small Business Health Options Program, also known as the SHOP marketplace. (Click here to learn about SHOP.)

Small Business Health Care Tax Credit

Last year, the maximum credit you can claim increased to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers. The credit is available to eligible employers for two consecutive taxable years.

Here’s more good news. Even if you didn’t owe tax during the year, you can carry the credit back or forward to other tax years. The IRS says eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit, since the amount of the health insurance premium payments is more than the total credit. That’s both a credit and a deduction for employee premium payments.

Can I claim this credit?

To be eligible, the IRS requires that you 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 per year.

You also have to purchase insurance through the SHOP Marketplace (or qualify for an exception to this requirement) to be eligible for the credit.

If you’re looking to purchase health insurance for your employees, our agents can help you. We understand the complicated health insurance system, and can find the coverage you need at the best possible price. Give us a call today at 714-258-2800 or 888-725-7776 or click here to visit our website.