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Don't Overlook the Small Employer Health Care Tax Credit

By Marcia Richards Suelzer, MA, JD | August 01, 2012

The small business health care tax credit, which was included in the 2010 Patient Protection and Affordable Care Act, is designed to offset health insurance expenses of small businesses and tax-exempt organizations employing 25 or fewer workers with an average income of $50,000 or less. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible to claim the credit.

Act Now

You can easily check to see whether your business qualifies by using a simple worksheet developed by the IRS.

And, for more information, see our full discussion of this tax credit.

The credit--which reduces your tax bill dollar for dollar--can result in significant savings.

Example

Ned's Auto Repair Shop has 10 employees, each with wages of $25,000 in 2011. Ned maintains a health plan which covers himself, his family and his workers. His employee health care costs were $70,000. His 2011 tax credit will be $24,500, assuming all the eligibility requirements are met.

Even if you don't owe any taxes this year, you may still benefit from the small business health care credit. Most small businesses may carry back unused general business credits (including the small employer health care tax credit) five years. Small businesses that do not have tax liability to offset in the current year should still evaluate eligibility for the small business health care tax credit in light of this expanded carryback opportunity.

Example

In 2011, Ned's Auto Repair Shop sustains a net operating loss. Even though Ned does not owe any taxes for 2011, he can still claim the credit, by carrying it back five years--to a year in which he did owe taxes. This would then generate a tax refund from the taxes he paid. Ned, and you, must make sure to work with a tax professional in this situation as carrybacks and the ordering of the deductions can be extremely complex.

Claiming the Credit

You use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the small employer health care credit. The credit is claimed as a general business credit on Form 3800, General Business Credit. For sole proprietors, this is then reflected on line 53 of your Form 1040.

Work Smart

If you have already filed your 2011 tax return, it's not too late for you to claim the credit. Even if you have filed your return, take time to review the eligibility requirements for the health care credit. If you determine you are eligible for the credit, you can file an amended 2011 tax return.

Tax Center

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