According to statistics from the Small Business Administration, small businesses pay on average 18% more for health care than large businesses. The Affordable Care Act is intended to level the playing field for many small businesses. Small businesses, depending on size, can receive tax breaks in some circumstances for providing health coverage.
Employers with less than 10 Full Time Equivalent Employees
Employers with less than 10 employees may qualify for the Small Business Health Care Tax Credit to help offset the cost of providing health coverage. To qualify, the employer must
- Have average annual wages below $50,000; and
- Contribute 50% or more toward employees' self-only premium costs.
The maximum tax credit is available to employers with 10 or fewer full time equivalent employees and average annual wages of less than $25,000.
Employers with 11 to 24 Full Time Equivalent Employees
Employers with between 11 and 24 Full Time Equivalent Employees may qualify for the Small Business Health Care Tax Credit if they provide health coverage. To qualify the employer must
- Have average annual wages below $50,000; and
- Contribute 50% or more toward employees' self-only premium costs.
The credit is scaled, and for each employee over 10 and average wages over $25,000, the credit is reduced. Beginning in 2014, the credit goes up to 50%, provided the employer buys coverage through a small business health insurance marketplace (SHOP) under a Health Care Exchange. This federal tax credit can be claimed for any two consecutive taxable years starting in 2014.
Employers with 25 to 49 Full Time Equivalent Employees
Employers with 25 to 49 Full Time Equivalent Employees are not eligible for the federal Small Business Health Care Tax Credit. States might have credits available.
Small businesses should pay attention to developments in health care reform and determine if tax savings are available for providing benefits.
