Small Business Health Care Tax Credit
These tax credits are specifically designed to encourage small businesses and small tax-exempt organizations to either maintain existing health coverage or offer health insurance to employees for the first time.
Who is eligible?
Small and tax-exempt employers that provide health care coverage to their employees are eligible for the health care tax credit if:
- They employ fewer than 25 full-time equivalent employees;
- The annual average earnings wage per employee is less than $50,000 per year; and,
- They pay at least 50 percent or more of employees’ premium cost for health insurance coverage
How much is the tax credit?
To help offset the costs of covering employees, there is a sliding-scale tax credit of up to 35 percent of the employer’s eligible premium expenses for tax years 2010–2013.
- Employers with 10 or fewer full-time employees, paying annual average wages of $25,000 or less, qualify for the maximum credit – 35 percent.
- Beginning in 2014, the maximum tax credit increases to 50 percent of premium expenses and coverage must be purchased from the California Health Benefit Exchange.
For tax-exempt employers, the maximum tax credit is 25 percent of eligible premium expenses for tax years 2010 – 2013, increasing to 35 percent in 2014.
How to claim the tax credit
The small business tax credit took effect immediately after the 2010 passage of the ACA. Small businesses can now claim the credit on their 2010 income tax return. Small businesses that have already filed a tax return and later determine they are eligible for the credit can file an amended 2010 tax return.
Small employers can calculate the credit with the new IRS Form 8941, Credit for Small Employer Health Insurance Premiums, available at www.healthlawguideforbusiness.org/taxcredit.
Paid for by The California Endowment
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