Smart Benefits: Why Aren’t More Companies Taking Small Business Tax Credit?
Monday, April 11, 2016
Businesses with fewer than 25 full-time employees who make an average of less than $50,000 ($51,800 in 2016) may qualify for the Small Employer Health Care Insurance Tax Credit, established under the ACA, if they cover at least 50 percent of the cost of workers’ individual premium costs and offer coverage through the SHOP marketplace.
The tax credit is worth up to 50% of an employer’s contribution (up to 35% for tax-exempt employers). It is available to eligible employers for two consecutive taxable years. Even if a business didn’t owe tax during the year, it can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for premiums in excess of the credit.
So why are only a fraction of eligible businesses taking the credit?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAccording to a March Government Accountability Office report, only about 181,000 employers in 2014 claimed the credit, a relatively low number compared to the number of employers eligible for the credit, which GAO estimated to be between 1.4 million and 4 million.
The reasons GAO cited for the limited participation:
- The maximum amount of the credit doesn’t appear to be a large enough incentive for employers to offer or maintain insurance.
- Few small employers qualify for the maximum credit amount.
- For those employers who do claim the credit, the credit amount “phases out” to zero as employers employ up to 25 full time equivalent (FTE) employees at higher wages.
- The amount of the credit is also limited if premiums paid by an employer are more than the average premiums for the small group market in the employer’s state.
- The credit can only be claimed for two consecutive years after 2013.
- The cost and complexity involved in claiming the tax credit is significant.
- Many small businesses are unaware of the credit.
To learn more about the credit and whether a business is eligible, the IRS offers information here. Businesses must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. Tax-exempt organizations should include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. The Form 990-T must be filed to claim the credit even if an organization doesn’t ordinarily do so.
Rob Calise is the Managing Director, Employee Benefits. of Cornerstone|Gencorp, where he helps clients control the costs of employee benefits by focusing on consumer driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance.
Related Slideshow: 25 Ways to Support Small Businesses in RI
-
Grab a Snack 
Shop for Dad-
Shop for Mom 
Shop for Someone Special
Shop for a Difficult Buy
Take a Break
Grab Some Lunch
Even More Lunch!-
Do Something Creative -
Participate in and Event -
Get Some Retail Therapy -
Get Ready for a Night Out -
Grab Yourself a Treat 
Improve Your Space
Out With the Old
Gear Up
Solve a Problem
Don't Forget Fido
Grab a Drink-
Enjoy Local Atmosphere 
Enjoy a Show-
Buy Cool Memorabilia 
Bar Hop
Grab A Late Night Snack-
Pick up New Music
Related Articles
- Smart Benefits: ACA Insurance Reforms Finalized
- Smart Benefits: CMS Proposes Improvements for Marketplace
- Smart Benefits: 10 Days to Shop for New HealthSource Plan for Jan. 1
- Smart Benefits: Boost Employee Retirement Contributions in the New Year
- Smart Benefits: ACA’s “Cadillac Tax” Delayed
- Smart Benefits: Private Employers Offer Loan Repayment to Attract Young Workers
- Smart Benefits: Retirement Plan Contribution Limits Remain Unchanged for 2016
- Smart Benefits: Small Businesses Remain Those with 50 or Less Employees
- Smart Benefits: Benefits Increasingly Key to Recruitment
- Smart Benefits: Important Reminders for 2016 Exchange Open Enrollment
- Smart Benefits: Maximize Deductions & Attract Employees With Fringe Benefits
- Smart Benefits: Year-End ACA Tax Tip for Employers
- Smart Benefits: ACA Employer Reporting Deadlines Extended
- Smart Benefits: Three Hot HR Topics for 2016
- Smart Benefits: New ACA Litigation - Dave & Buster’s Dismissal Denied
- Smart Benefits: Beware - ERISA Enforcement Recoveries Hit $696.3 Million in 2015
- Smart Benefits: With Millennials, Creativity is Key to Benefits
- Smart Benefits: Deadline Looming for IRS Forms
- Smart Benefits: Exchange Enrollment Figures In
- Smart Benefits: Federal Appeals Court Upholds ACA Contraceptive Mandate
- Smart Benefits: IRS Releases New ACA Guidance
- Smart Benefits: Boost Benefit Engagement in 2016
- Smart Benefits: Large Employers May Have to Report Pay Data
- Smart Benefits: Get your Documents in Order for a DOL Audit
- Smart Benefits: One Week to Get Insured – or Pay
