Qualifying small businesses with fewer than 25 employees and average wages under $50,800 can qualify for tax
credits of up to 50% (35% for tax-exempt entities) of the health insurance cost
if they pay at least half the premiums for their employees and have purchased
the policies from a SHOP exchange. Small
businesses are allowed to claim the credit for only two consecutive years after
the tax year 2013. To
be eligible to receive the credit, the following prerequisites must be met:
1.
There
are fewer than 25 full-time equivalent employees. The
full-time equivalent employee calculation is relatively simple, all you need to
do is follow the 3 steps:
- Step 1: Compute the sum of the employees' hours worked (No greater than 2,080 hours per employee)
- Step 2: Divide the sum from Step 1 by 2,080
- Step 3: Truncate the decimal part of the result (e.g. 6.8 is 6 full-time equivalent employees)
- Do you have seasonal employees? If yes, then seasonal employees who work fewer than 120 days in the tax year are not included in the full-time equivalent employee calculation, but premiums paid on their behalf are included in the calculation for the credit. Please note, the employee must be seasonal and not just terminated/quit before 120 days worked.
- NOTE that sole owners, partners, and shareholders who own more than 2% are not included as employees.
2.
The
average annual wages is less than $50,800. To
calculate the average annual wages, divide total wages paid divided by the
number of full-time equivalent employees. NOTE that sole
owners, partners, and shareholders who own more than 2% wages are not included in the average annual
wage calculation.
3. Health
insurance premiums must be paid by the employer in a uniform percentage of at
least 50%.
4. The
qualified health plan must be purchased
through a SHOP exchange. This is new for 2014. For
more information on SHOP exchanges, please visit this site.
If the 4 prerequisites above are met,
use the chart below to estimate of how much of a credit you can claim:
