Federal tax credits are available for small businesses and non-profit organizations to help cover the cost of offering health insurance to employees. The credit is worth up to 50% of the costs you pay for your employees’ premiums; for non-profit employers, the credit is worth up to 35%. To qualify for the tax credit, a business must meet certain criteria, including:
1. Have less than 25 full-time equivalent (FTE) employees. Have a mix of part-time and full-time employees? Here’s a calculator that can help you calculate your company’s FTEs.
2. Have an average employee salary of no more than about $50,000 per year, excluding the wages of the owners and their families.
- 3. Pay at least 50% of your full-time employees’ health insurance premium costs.
- 4. Offer coverage to all of your full-time employees. You don’t have to offer coverage to dependents or employees working fewer than 30 hours per week to qualify for the tax credit.
- Tax credits translate into a dollar-for-dollar reduction of your tax liability. The small business health care credit is refundable, so even if your business has no taxable income in a year, 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. Even if your business did not owe tax during the year, you may be able to carry the credit back or forward to other tax years. And since the amount of the health insurance premium payments is more than the total credit, eligible small businesses may still be able to 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. As with any tax-related issue, it’s always a good idea to consult a tax professional.
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