Provisions Of The Affordable Care Act Financing For Long-Term Care Facts About the Small Business Healthcare Tax Credit

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Facts About the Small Business Healthcare Tax Credit

The Small Business Healthcare Tax Credit is set to encourage small businesses and tax-exempt organizations to provide essential healthcare benefits to their employees. This tax credit was introduced in 2010 under the Affordable Care Act. Qualifying businesses and charities can claim this credit and therefore reduce their tax bill dollar for dollar. This credit is available to both first-time employers providing health care and employers who have provided health care to their employees in the past. Below are the eligibility requirements for the tax credit:

Business size

To qualify for the Small Business Healthcare Credit, a business or tax-exempt organization must have a maximum of 25 full-time employees or more. These employees must earn on average, not more than $50,000. Organizations larger than this threshold are not eligible for the credit. The IRS determines whether an employee is full-time according to the definition provided by the Department of Labor. According to the Department of Labor, a full-time employee is an employee who works at least 30 hours per week for the same employer.

Credit to claim

For tax years 2010 to 2013, eligible businesses can claim up to 35% of healthcare premiums paid for their employees while tax-exempt organizations can claim up to 25% of their employee healthcare expenses. However, for 2014 and beyond, the credit goes up to 50% of premiums paid for eligible businesses and 35% for qualifying tax-exempt entities.

Non-refundable credit

The Small Business Health Care Credit is a non-refundable tax credit. Therefore, only organizations and businesses eligible to claim the credit can avail the tax credit. These eligible organizations cannot receive refund checks against credit. However, if an eligible small business does not use all of its credit in the year it is claimed, it can carry forward the credit from 2010 to 2016.

Filing a claim

For a business or tax-exempt organization to successfully claim this tax credit, they need to file Form 8941, Credit for Small Employer Health Insurance Premiums. This form enables employers to list employees and premiums paid and calculate the qualifying credit they claim for a given tax year. A qualifying employer is also required to claim the final healthcare tax credit amount on Form 3800, General Business Credit as part of the General Business Credit.

It is also important that employers keep relevant documents to support the claim in case of an IRS audit. Supporting documents include a receipt for premiums paid or a statement from your healthcare provider.

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