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Finance & Accounting, HR, Retail & Inventory, Taxes

Is My Business Eligible for a Small Business Health Care Tax Credit?


One of the goals of the Affordable Care Act (a.k.a. “Obamacare”) was to make it easier for small businesses to afford health insurance coverage, and also to reward and support small businesses that were already offering health insurance to their employees. As part of this overall system of incentives and rewards, small businesses that meet certain qualifications can receive a Small Business Health Care Tax Credit (SBHCTC). The credit is intended to help businesses provide health insurance to their employees for the first time or maintain coverage that they already offer.

Many business owners might be curious to find out if their company qualifies for the Small Business Health Care Tax Credit, but the rules can be a bit complicated and not every company will qualify. Here is a closer look, courtesy of the Taxpayer Advocate Service, about what it takes to qualify for the Small Business Health Care Tax Credit:

Is My Business Eligible?

According to the , small businesses may be eligible for the tax credit if they:

  • Have fewer than 25 full-time equivalent (FTE) employees for the tax year
  • Pay average wages of less than $50,000 per year per FTE
  • Pay at least half of employee health insurance premiums under a qualifying arrangement.

How Much Does the Small Business Health Care Tax Credit Pay?

For tax years 2010 to 2013, the maximum credit amount was 35 percent of premiums paid for small businesses. For tax year 2014 and later, the maximum credit is 50 percent of premiums paid for small businesses – and to qualify for the tax credit, the small business must buy its health insurance through the Small Business Health Options Program (SHOP) Marketplace.

According to the IRS, this means that “If you pay $50,000 a year toward employees’ health care premiums – and if you qualify for a 15 percent credit, you save… $7,500…If…you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year.”

Another advantage of the Small Business Health Care Tax Credit is that even if you did not owe tax during the year, you can carry the credit forward or backward to other tax years.

How Much Credit Will I Receive?

Finding out how much of the health care tax credit your business qualifies for can be a bit complicated, and there are several factors involved related to the number of employees, hours worked and average wages that your company pays – so for full details, check out the .

How Can I Get Help to Understand This Tax Credit?

You can also use the Taxpayer Advocate Service’s Small Business Health Care Tax Credit Estimator to find out what you’re eligible for and how much of a credit you might receive. The Taxpayer Advocate Service is an internal “watchdog” organization within the IRS that helps serve as a voice for taxpayers and also connects taxpayers with resources and information on how to understand their rights and obligations under the tax code.

Whatever you decide to do with applying for the Small Business Health Care Tax Credit, be sure to talk with your accountant or other professional tax advisers to make sure you are maximizing your tax savings and handling your health insurance options in the way that makes the most sense for your business. There is help available for small businesses that provide coverage to their employees, but the fine print can be complicated and it’s important to avoid any misunderstandings or mistakes when filing your tax return.

Has your business received help from the Small Business Health Care Tax Credit? How much of a difference did it make for you? Leave a comment and let us know!