Small Business Health Care Tax Credit

Received a Postcard from the IRS?

Millions of small employers received postcards from the IRS beginning in April that alerted them to the new small business health care tax credit and encouraged them to check their eligibility. Even if you didn’t receive a postcard, your business still may be eligible. Read more about this effort. 

Eligibility Rules

• Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• Average annual wage. A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

• Maximum Amount. The credit is worth up to 35 percent of a small business’ premium costs in 2010 (25% for tax-exempt employers). On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers). 
  Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers. 

Three Simple Steps for Employers to Qualify

To determine if your small business or tax exempt organization qualifies for the small business health care tax credit, follow the three simple steps on our fact sheet.

Examples

Scenarios illustrate how the credit applies to employers in different circumstances.

Claiming the Credit

Small employers, whether businesses or tax-exempt organizations, will use new Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the small business health care tax credit.

Small businesses will include the amount of the credit as part of the general business credit on their income tax returns.

Tax-exempt organizations will include the amount of the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T (draft available for viewing) will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– to claim the small business health care tax credit.

For more information, see our news release.

Questions and Answers

Need more detailed information? We have answers.

YouTube Primer on Health Care Credit

This new video explains the who, what, why and how of the small business health care tax credit.

For More Information

New guidance makes it easier for small businesses to determine whether they’re eligible for the new health care tax credit under the Affordable Care Act and how large a credit they’ll receive.