Small Employer Tax Credits • March, 2013

Who wouldn’t want another tax break? If you qualify, you’ll get a credit of up to 35% of your medical premiums this year and up to 50% in 2014. Unlike the healthcare deduction currently available, the credit is a dollar-for-dollar reduction of your company’s tax liability. Plus you can double-dip. For example, in 2013, take the tax credit on 35% of your premium cost, and the tax deduction on the remaining 65%.

Qualified Employers
You’ll have to jump three hurdles to qualify for this new credit: have less than 25 “full time equivalent” employees, pay on average $50,000 or less, and pay at least 50% of the employee’s medical premiums.

You do not need to include some employees in your calculations. And if you exclude them as employees, you also exclude them from the average pay level.

DO INCLUDE

  • Full & part time employees
  • Leased employees
  • Seasonal employees (if worked more than 120 days during the taxable year)

DO NOT INCLUDE

  • Seasonal employees (if worked 120 days or less during the taxable year)
  • Self-employed individuals
  • 2% or greater shareholders in an S-Corp
  • 5% or greater owners
  • Relatives of these self-employed, shareholders, or owners (including in-laws) and household members

Is your company part of a controlled group (businesses that
have the same owner), or an affiliated group (related
businesses where one business performs services for the
other)? You’ll be treated as a single employer for this credit.
Check out Code Section 414(b), (c), (m), and (o).

Duration of the Credit
The credit became available beginning in 2010. As of 2014,
you can only take the credit if your medical plan is
purchased through your State’s healthcare exchange. Once
you jump to the exchange, you can take the credit for up to
two consecutive years.

Calculating Employees & Wages If you have any employees working less than 40 hours a week, you can count them as a fraction of an employee. Just take all the hours for employees you have to include (not counting overtime worked), divide by 2080, and you’ll get your “full time equivalent” (FTE) number – round down to a whole number.

For average wages, add up what you paid the employees you included above. Then divide by your FTE number – round down to a multiple of $1000.

Taking the Credit

Most companies will take the credit on their annual income tax return. The only exception is for tax-exempt businesses – see your tax advisor for more information.

For tax years 2010 to 2013, you can receive up to a 35% tax credit (25% max for tax-exempt companies). As of the 2014 tax year, the tax credit will be increased to 50% (35% for tax exempt companies). Your tax credit will be on a sliding scale. To receive the maximum credit, you’ll need to have 10 or fewer FTE employees and pay less than $25,000 on average per employee.

If you have 11+ FTE employees, your credit will be reduced by: Your credit * (# of FTE – 10) / 15

If your average wages > $25,000, your credit will be reduced by: Your credit * (ave wages – $25,000) / $25,000

And of course there are caps…insurance premiums counted cannot exceed your State’s “average premium for the small group market”. See the latest state figures on page 5-6 of this publication: http://www.irs.gov/pub/irs-pdf/i8941.pdf.

This article is provided for informational purposes only. Please contact your attorney and/or accountant to determine if this information may affect your business. © 2015 GHB Insurance

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