How You Benefit by Offering Health Insurance to Your Employees

Small Business

How You Benefit by Offering Health Insurance to Your Employees

Published on April 17, 2017


As a small business owner, what do you get from offering your employees health insurance? You get more than just bringing in the top talent or giving your seasoned employees a reason to want stay with the business.
The Affordable Care Act changed many things, including how some small businesses can get real tax benefits by offering health insurance to their employees. Find out more about the small business health insurance credit and if you qualify.

What is the Small Business Tax Credit?

Beginning in 2014, some small businesses with fewer than 25 full-time equivalent employees became eligible under the Affordable Care Act to take a health care tax credit if they provide insurance to their staff and pay at least half of the premiums.
For qualifying small business owners, this essentially means the federal government is supplying you with a tax credit to pay about half of your contribution to an employer-sponsored health care plan.
What’s more, this tax credit may be available in addition to the tax deduction you may be able to take for money you pay toward employee premiums.

Who Qualifies for the Tax Credit?

The introduction of the small business health insurance credit serves as an incentive for business owners to provide their team with health benefits, but it comes with some very specific requirements. To qualify you must employ 24 or less full-time equivalent staff members. Full-time equivalent means:

  • Employees that maintain a full-time schedule of more than 30 hours per week in any given month
  • Employees that work more than 120 days per year

This means some employees that you consider part-time might qualify as a full-time equivalent unless they are seasonal only. For example, if you hire an employee only to work the holiday season, they may not qualify.
Other requirements for the small business health insurance credit include:

  • You must pay average wages of less than $52,000 dollars a year as of 2017
  • You must purchase your insurance coverage via the SHOP Marketplace or through a licensed agent who can enroll you in SHOP plans
  • You must pay at least fifty percent of your qualified employee’s health care premium

If you meet all these standards, you may be able to take the small business health insurance credit. To confirm your eligibility to take the tax credit, be sure to work with a licensed health insurance agent and to consult a licensed tax professional.
You may also wish to read through the IRS’s 3 Simple Steps form to educate yourself.
Once you are sure you qualify for the tax credit, the next step is to fill out IRS form 8941 to calculate your deduction.

Understanding the Small Business Health Insurance Credit

Though the qualifications for this tax credit are specific, they are not difficult to meet. Yet, many companies are missing out on these savings. The U.S. Government Accountability Office states that in 2014, only 181,000 small business employees claimed their credit.
The agency estimates that anywhere from 1.4 to 4 million registered companies may have qualified for the credit – they just didn’t know it or take action to get the credit. While those numbers have improved over the last few years, a surprising number of small businesses are still missing out on this opportunity.
When considering whether or not to offer employer-sponsored health insurance to your employees, be sure to keep this special tax credit in mind. Discuss your options with a licensed insurance broker to find out more.

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