Does My Business Qualify for a Health Insurance Tax Credit?

If you’re starting up your own business, there are many costs involved in the early stages, and it can be difficult to know whether they’ll be worth the return once you start making money. One way to do this is to get a tax credit. This brings the question, “Does my business qualify for a health insurance tax credit?”

Health insurance tax credits can save you up to 50% on your health insurance premiums as soon as your business makes over a certain profit per year. However, before claiming this credit, you should know some important things about how it works and what your business needs to meet eligibility requirements.

Qualify for a Health Insurance Tax Credit?

Employers with fewer than 25 full-time equivalents (FTEs) qualify for the small business healthcare tax credit if they meet the following three requirements:

·        The average wage per FTE employee is less than $56,000 annually (indexed annually for inflation since 2014).

·        They ensure employees have access to a qualified health plan through the SHOP Marketplace (exceptions may apply).

·        They pay at least half of the employee-only option’s cost.

Credits are based on the size of the employer, as mentioned above. You may not have to spend money if your company has fewer than 10 FTE employees or your average employee is not making over $27,000.

The credit is also available to nonprofit organizations and those classified as tax-exempt. Tax-exempt businesses can claim the credit up to the amount of their income tax withholding and Medicare tax payment for the year. Depending on the current fiscal year’s sequestration rate, tax-exempt organizations will be entitled to less of a refund.

How to Calculate Business Health Care Tax Credit

For tax credit purposes, one FTE employee equals 2,080 hours per year. It is contrary to other parts of the ACA, which assume a full-time staff member to be an individual who is working at least 30 hours per week. A full-time employee is equivalent to any number of part-time employees who work a total of 2,080 hours per year.

The number of hours worked by a single employee over 2,080 hours per year does not count toward FTE. The calculation should also exclude seasonal employees who work fewer than 120 days per year. The health insurance premiums paid by the employer for seasonal workers also make the cut in the credit calculation. In addition, FTEs should exclude the following in their calculation:

·        The sole proprietorship owner.

·        Partner in a partnership.

·        Shareholder of an S Corporation owning more than 2%.

·        Owner of more than 5% of a business.

·        Family members of the above.