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Small business? Use tax credit to help pay for insurance

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in Compensation and Benefits,Human Resources,Small Business Tax

One goal of last year’s federal health-care reform legislation was to make it more affordable for small business owners to offer health insurance benefits to employees. So, tucked into the Affordable Care Act (ACA) is a little-noticed but potentially invaluable provision that could save small businesses thousands of dollars per year.

Uncle Sam is offering a tax credit—currently 35%, but going up to as much as 50% in 2014—to offset some of the costs for small businesses that contribute to employee health insurance.

Strategy: Consult your organization’s tax expert to find out if you qualify. It could be well worth the digging to find out. A small business with 15 employees that pays $100,000 in insurance premiums per year could wind up with a tax credit worth $20,000.

The details: A small business may be eligible for the credit if it purchases health insurance for its employees. To qualify, businesses can’t have more than 25 full-time employees with average ­annual wages above $50,000. The contributions must be made under an arrangement requiring the employer to make nonelective contributions to health insurance equal to at least 50% of the premium cost.

Currently, a small business can claim a credit equal to 35% of the cost of its qualified employer contributions (25% for tax-exempt organizations). In 2014, the credit is scheduled to increase to 50% of contributions for employers that participate in state-run insurance exchanges scheduled to come online that year (35% for tax exempts).

A number of technical requirements could reduce those amounts in out years. Your tax advisor can fill you in.

Find IRS info at

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