The Small Business Health Care Tax Credit is intended to encourage small employers to offer health insurance to their employees. The maximum tax credit was 35% of the employer’s premium payments made on behalf of employees in tax years 2010 – 2013. However, this credit amount will increase to 50% of the employer’s premium payments beginning in the 2014 tax year.
It is important to note that to be eligible for the Small Business Health Care Tax Credit, the employer must have fewer than 25 full-time equivalent employees making an average of about $50,000 a year or less. To be eligible for the full amount of the tax credit the company must have fewer than 10 full-time equivalent employees making an average of about $25,000 a year or less. (The Owner may typically be excluded from these calculations.)
To qualify for the Small Business Health Care Tax Credit, the employer must pay at least 50% of full-time employees’ premium costs (employee only coverage). The employer does not need to offer coverage to part-time employees or to dependents.
Beginning in 2014, only premiums paid by the employer for employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP Exchange) are counted when calculating the credit.