Take Advantage of the Small Business Health Care Tax Credit

Since 2010, the Affordable Care Act has provided small businesses that have fewer than 25 employees, pay average annual wages less than $50,000 and contribute 50% or more toward employee self-only health insurance premiums with a tax credit of up to 35%. However, this year, the tax credit will increase to 50% for small businesses that meet those requirements and who purchase health insurance coverage through the new Small Business Health Options Program Marketplace.


“Although the Affordable Care Act does not require that businesses provide health insurance, it does offer tax credits for eligible small businesses that choose to provide insurance to their employees for the first time, or maintain the coverage they already have,” according to an article on the Small Business Administration website. “This enhanced credit can be claimed for any 2 consecutive taxable years beginning in 2014 (or beginning in a later year) through the SHOP.”

While any small business that meets the requirements is eligible for the small business health care tax credit, it is specifically targeted for businesses with low- and moderate-income workers. To qualify for the maximum small business tax credit, small businesses need to contribute at least 50% toward employee self-only insurance premium costs, have 10 or fewer full-time employees and have annual average wages at or less than $25,000.

SHOP Marketplace

To help small business owners find a health plan suitable for their company, the Affordable Care Act provides small employers with access to the Small Business Health Options Program (SHOP) Marketplace, offering coverage through qualified health plans in every state.

According to an article on the US Department of Health and Human Services website, “The SHOP Marketplace helps small businesses compare different plans, to find a plan that fits their budget and meets the needs of their business and employees.”

To participate in direct enrollment, small employers will enroll their employees in coverage through an agent, broker or insurer that offers a certified SHOP plan and has agreed to conduct enrollment according to HHS standards. Small employers only need to apply for SHOP eligibility prior to enrolling if they are interested in reading information on different plan options. Otherwise applications will be reviewed by the SHOP Marketplace after small employers’ agent, broker or insurer enrolls small business employees, determining eligibility for SHOP coverage.

“You don’t need to wait for the SHOP to determine your eligibility, because it doesn’t affect your ability to enroll in a Qualified Health Plan, like the ones the SHOP offers,” according to the Department of Health and Human Services. “Even if the SHOP later determines that you are not eligible to enroll through the SHOP, you and your employees may remain enrolled in your chosen plan in the small group market.”

Small business owners can wait until they receive an eligibility notice from the SHOP Marketplace before enrolling employees in a SHOP plan. Enrollment for coverage through the SHOP Marketplace is offered throughout the year with coverage beginning the first day of the next month for enrollments submitted between the first and 15th day of the month and coverage beginning the second following month for enrollments submitted after the 15th. SHOP eligibility determination, along with other requirements, will allow small business owners to claim the expanded small business health care tax credit at the end of the tax year. Small business owners do not need to apply for SHOP eligibility if they do not qualify for the tax credit.

Claim the tax credit

After determining whether your small business qualifies for the tax credit, either a tax professional or the IRS can help you claim the credit. Using the Credit for Small Employer Health Insurance Premium form, calculate the credit and include the amount as part of the general business credit on your income tax return. Even if you did not owe tax during the year, the credit may be able to be carried back or forward to other tax years.

According to the Small Business Administration, employers should keep in mind that this is a federal tax credit and to check if your state has additional health care tax credits available to small employers. Eligible small employers can also still claim a business expense deduction for the remainder of their premium contributions. — by Casey Tingle

For more information:
How to take advantage of the small business health care tax credit. Available at www.sba.gov/community/blogs/how-take-advantage-small-business-health-care-tax-credit. Accessed Dec. 18, 2013.
A direct new path to SHOP Marketplace coverage. Available at www.hhs.gov/healthcare/facts/blog/2013/11/direct-new-path-to-shop-marketplace.html. Accessed Dec. 19, 2013.
Small business health care tax credit for small employers. Available at www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers. Accessed Dec. 18, 2013.

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