What is the small business health care tax credit?

This federal law is in place to help small business owners offer healthcare coverage to their employees and put money back into their pocket. To qualify, a business will need to offer a qualified health plan (QHP) through the Small Business Health Options Program Marketplace (SHOP). SHOP plans are tailored to meet the needs of employers with 1-50 employees. You can register for the program through an insurance company like Ohio Health Benefits or with a SHOP-registered agent or broker.

To be eligible for the credit, your organization must employ fewer than 25 full-time equivalent employees (FTEs) during the tax year.

The number of FTEs at an organization is made up of a combination of full-time and part-time employees. Part-time hours are considered anything less than 30 hours per week.

To calculate your number of FTEs, you’ll first determine the number of full-time employees you have working at the organization (i.e., those working 30 or more hours per week). Next, you’ll determine the “full-time equivalent” of your part-time employees by adding the number of hours worked by all part-time employees in a given month and dividing the total by 120. This gives you the number of FTEs in your part-time workforce.

The number of FTEs is equal to your organization’s full-time employees plus the number of your full-time equivalent part-time employees, rounded to the lowest whole number.

The Internal Revenue Service (IRS) has strict rules for FTEs. The business owner, a sole proprietor or partner, and their family members don’t qualify as FTEs. Neither do seasonal employees who work fewer than 120 days during the taxable year.

If your organization meets the size requirements, you’re ready to determine if you meet the annual wage requirements for the health care tax credit. Healthcare.gov explains that to be eligible, your business must have an average employee salary of about $56,000 per year or less.

Additionally, there’s an even higher tax break for the smallest businesses. To qualify, your company must have fewer than ten employees who are paid an average annual salary of $27,000 or less.

To calculate average annual wages, you’ll add up the total wages paid to your FTEs during the tax year and divide that number by the total number of FTEs.

On average, the smaller your organization, the bigger the credit you’ll receive to help pay your employee’s premiums for health insurance. If you think you’re eligible for the credit, you’ll first fill out Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate your credit. Then, you’ll include the amount as part of the general business credit on your income tax return.

Many small business owners think offering health benefits to their eligible employees is an unrealistic expense, the small business health care tax credit can make it possible. At Ohio Health Benefits, our independent, licensed, small business health insurance brokers, work for you. We advocate for your company, not insurance carriers. If you have questions, call us toll free at 330-633-3837 or click here to email us your name and phone number for us to call you.