How to Determine if Your Business Qualifies for the Health Care Credit

Does Your Business Qualify for the Healthcare Credit?

To qualify for the Small Business Health Care Tax Credit employers must:

  • Pay at least 50 percent of health care premiums/coverage for all eligible employees.
  • Have less than 25 Employees as FTE’s (Full Time Equivalents). For example a firm with 50 half-time workers may be eligible).
  • Average annual wages (based upon FTE’s) must be less than $50,000. The health care credit is at its maximum at $25K and then is phased out at $50K.
    Please note that for FTE and salary purposes the owners of the business/family members and dependents should not be considered.
  • Insurance benefits must be offered the same to all employees.

To determine the Health Care Credit you will need..

By employee what the health care premiums paid were. Be sure that this list only the portion that the company pays (if an employee pays a portion this will need to be netted against the total premium). Be sure that you send to your tax preparer by employee a report that reconciles/equals the net amounts on the profit and loss, their wages and their hours worked in Full Time Equivalents/FTE.

To help clarify the law in determining FTE/Full Time Equivalents:

If you hire a full time employee on December 1st of the year you would count their hours as 173 hours (2080 full time hours divided by twelve months in a year). If you have a permanent part-time employee who works ten hours a week then they would be reflected as 520 hours provided they worked all year (52 weeks a year times ten hours a week).

Please note you will not want to consider any overtime hours in a week/pay period in determining their annual hours of service.

By employee whether they were on a employee only coverage or family coverage.

Visit this IRS website to read more on Small Business Health Care Tax Credit for Small Employers.

If after an initial review of the above criteria you believe you qualify for the healthcare credit you will need to forward to your CPA the net amount of health care premiums the company paid by employee along with the hours that employee worked during the year.

For help pulling your information together to prepare your year-end taxes you can use His CPA – Checklist for Year-End Taxes and Monthly Financials