There’s Still Time to Benefit From the Healthcare Tax Credit

By Maria Valdez Haubrich

With challenges in court and a Presidential election coming up, there’s lots of uncertainty as to how President Obama’s health care reform legislation, the Affordable Care Act, will actually shake out. But one thing is certain: If you provide health insurance for your workers, you may still be able to benefit from a health care tax deduction that was part of the new law.

The Internal Revenue Service is encouraging all small employers that provide their employees with health insurance coverage to claim the small business health care tax credit if they qualify.

To be eligible, the IRS says, a business must pay at least 50 percent of the cost of single (not family) health care coverage for each of its employees. The company must also have fewer than 25 full-time equivalent employees (FTEs), and those employees must have average wages of less than $50,000 a year.

The maximum credit is 35 percent for small business employers. As an example of the potential savings, if you pay $50,000 a year toward your employees’ health care coverage and you qualify for a 15 percent credit, you would save $7,500.

Even if your business didn’t owe tax during the year, you can carry the credit back or forward to other tax years. And since the amount of the health insurance premium payments is more than the total credit, you can still claim a business expense deduction for the premiums in excess of the credit—so you’re getting a credit and a deduction at the same time.

Even tax-exempt small charitable organizations may be able to benefit from the health-care tax credit. For more details, including a step-by-step guide for determining your eligibility, examples of typical tax savings under various scenarios, answers to frequently asked questions, a YouTube video and a webinar, visit the Small Business Health Care Tax Credit page on IRS.gov.

If you need more time to determine your eligibility for the credit, talk to your tax preparer about getting a tax filing extension. If you’ve already filed your 2011 taxes and find that you qualified for the credit, all is not lost: The IRS says you can still claim the credit by filing an amended return. In fact, you can file an amended return for 2010 as well: Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

Image by Flickr user Truthout.org (Creative Commons)

This entry was posted on Tuesday, March 27th, 2012 at 4:00 pm and is filed under Accounting and Taxes, Compliance, small business, Small Business Success Index. You can follow any responses to this entry through the RSS 2.0 feed.


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