For tax years 2010 through 2013, the maximum tax credit for payment of health care premiums is 35% for small business employers, and 25% for small tax-exempt employers such as charities. In general, on January 1, 2014, the rate will increase to 50% and 35%, respectively.
Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15% credit, you save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.
Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.
If you can benefit from the credit this year but forgot to claim it on your tax return, there’s still time to file an amended return.
For examples of how the credit applies to different employer circumstances, click here: http://www.irs.gov/pub/irs-utl/small_business_health_care_tax_credit_scenarios.pdf
Please click the following link for more information on tax credits at the IRS website: http://www.irs.gov/newsroom/article/0,,id=223666,00.html
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The Grady Firm, P.C. attorneys specialize in helping businesses grow and succeed through employment, business, and immigration law advising for clients in California. They help perform personnel audits, draft/revise Employee Handbooks, train employers on employment law compliance, provide on-demand legal analysis for hiring and firing questions, and provide leadership and sexual harassment training in English and Spanish.
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*This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.