Small Business Health Care Tax Credit

March 1, 2013

In April 2010, the IRS started sending postings to millions of companies about the new small business health care tax credit and encouraged them to check their eligibility. Even if you didn’t receive a postcard, your business still may be eligible.

Eligibility Rules

  • Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage. A qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

  • Maximum Amount. The credit is worth up to 35 percent of a small business’ premium costs in 2010 (25% for tax-exempt employers). On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).

Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

The IRS has created a simple fact sheet to determine if your small business or tax exempt organization qualifies for the small business health care tax credit.

The IRS website provides a Frequently Asked Questionsrelated to the Small Business Health Care Tax Credit. We also suggest that you consult with a CPA for guidance.

If you need assistance with group health insurance please contact a licensed group insurance specialist at California Health Plans. Call us at 1-800-585-1776.

Post author Loren Pleet