IRS offers relief to employers claiming small business health care tax credits

If you are a small employer, there is a tax credit that can put money in your pocket.

The IRS just released guidance on Friday that will give some relief to some small business employers that want claim and take advantage of the Small Business Care Tax Credit for 2017 and later years.  

The Small Business Health Care Tax Credit was enacted to help small business owners that health insurance to employees under the Affordable Care Act.   The businesses usually have to provide their workers with a qualified health plan from a Small Business Health Options Program, or Shop, Marketplace to qualify for the tax credit. However, this type of tax credit can only be claimed for two consecutive years in a row.

The small business health care tax credit benefits employers that:

  • Have fewer than 25 full-time equivalent employees
  • Pay average wages of less than $50,000 a year per full-time equivalent (indexed annually for inflation beginning in 2014)
    • For tax year 2014, the inflation-adjusted amount is $51,000
    • For tax year 2015, the inflation-adjusted amount is $52,000
    • For tax year 2016, the inflation-adjusted amount is $52,000
    • For tax year 2017, the inflation-adjusted amount is $53,000
  • Offer a qualified health plan to its employees through a Small Business Health Options Program Marketplace (or qualify for a limited exception to this requirement)
  • Pay at least 50 percent of the cost of employee-only – not family or dependent – health care coverage for each employee

This relief announced by the IRS helps employees who first claim the credit for all or part of 2016 or a later taxable year for coverage offered through a shop Marketplace, but who don’t have Shop Marketplace plans available that they can offer to employees for all or part of the rest of the credit period because the county where the employer is located doesn’t have any Shop Marketplace plans available.

In many parts of the country, insurance companies have elected to drop their Obamacare policies, either because they don’t see the business as profitable or they are worried about the lack support for ACA in the Trump Administration.  

The relief provided by the IRS will enable small business employers to claim the credit for health insurance coverage provided outside a Shop Marketplace for the rest of the credit for health period if that coverage would have qualified under the rules that applied before Jan. 1, 2014.

In Notice 2018-27, the Internal Revenue Service is offering guidance about figuring the credit under these circumstances.  The notice does not affect previous transition relief for the credit that was separately provided for 2014, 2015, as well as 2016.

For more information on whether a county had or has coverage available through a SHOP Marketplace, check out the “Who Gets the Credit” section of the Questions and Answers about the Small Business Health Care Tax Credit page on the IRS website.

Claiming the health care tax credit  

form-8941-Small-Business-Health-Care-Tax-CreditYou must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941.

If you’re a small business, include the amount as part of the general business credit on your income tax return.

If you’re a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don’t ordinarily do so.

If you are a small business employer, you may be able to carry the credit back or forward. And if you are a small tax-exempt employer, you may be eligible for a refundable credit.    

Conclusion

With the TCJA now in effect and the seemingly tumultuous state of the economy apparent a very knowledgeable and well-versed tax team, working in tandem with an established accounting firm, is critical. Thomas Huckabee, CPA of San Diego, California understands how essential the process of completing and filing taxes in a diligently accurate and timely manner.

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