Small employers providing employee health coverage may be eligible to claim a tax credit under federal law. To be eligible for the credit, an employer must employ fewer than 25 full-time employees (or fewer than a combination of 25 full-time and part-time employees) with average wages of less than $50,000 a year. An employer must pay at least 50 percent of the cost of single (not family) health care coverage for each employee. Small businesses who do not owe tax during the year may be able to carry the credit back or forward to other years. In some instances, the credit may be claimed in addition to the business expense deduction for premiums in excess of the credit.
For tax years 2010 through 2013, only premiums paid to a health insurance issuer count for purposes of the credit. The maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers (such as charities). In 2014, the rate will increase to 50 percent and 35 percent. Small businesses may wish to review tax credit requirements and consider if they will claim, or be able to claim, the small business health care tax credit. The review will involve reviewing the demographics of the workforce and gathering information on health care premium expenditures.
