There continues to be much debate and discussion about the pros and cons of the Affordable Care Act and whether you are for or against, you’ll want to make sure you take advantage of the credit if your business qualifies. There are a number of variables that go into the determination of if and how your business, workers, and premiums qualify. I’ve tried to simplify the rules here, but if you have any questions, please contact me.

If you are a small business, and you pay the health insurance premiums for employees, the tax law provides a credit. Starting in 2014 the credit percentage increased to 50% (25% for tax-exempt organizations).

Your business can only claim the credit for two consecutive years. However, if you claimed the credit for the years 2010 through 2013, those years aren’t included in the two-year limit.

Starting in 2014, to qualify for the credit, the insurance must be purchased through the Arizona (or other appropriate) state exchange, the coverage must be uniform and not less than 50% of the total premium cost.

To qualify, your business cannot employ more than 25 full-time equivalents (FTE) workers, and the average wage cannot exceed $50,000 for the full year. There are also special considerations to be aware of related to owners, partners, leased employees and seasonal workers. Outlines are bellow.

  • Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S corporation, and 5% owners of the business are not included as employees when determining if your business qualifies for the credit and the credit amount.
  • Leased employees are included in employee count, but health insurance premiums paid by the leasing company are not included in determining the credit amount.
  • Seasonal workers and the wages paid to them are excluded from the FTE number and the average annual salary calculations unless the employee logs more than 120 days of service during the tax year. Health insurance premiums paid on behalf of your seasonal workers can be counted in determining the credit amount.

To qualify for the credit, you need to contribute at least 50% of the premiums for your employees’ health insurance coverage on a uniform basis.

If you employ more than ten full-time equivalent workers, or the average annual wage exceeds $25,000, the amount of your credit gradually phases out. The full credit is only available to your business if you employ 10 or fewer FTE employees and your employees have average annual wages of less than $25,000.

The credit is instead of taking a business deduction for employer-paid premiums and is part of the general business credit, which may exceed the amount of your business’ income tax. Any unused credit in the current year can be carried back one year and then forward until used up but no longer than 20 years.

If you have partners, multiple owners, seasonal or leased employees, coming up with the correct FTE count and credit amount can be complicated. If you need help, please contact me.

Randy Randy J. Elder, CPA, P.C.

With nearly three decades of professional experience in public accounting, Randy provides his tax and accounting expertise to new and small businesses in a casual and friendly environment. Before founding Randy J. Elder, CPA, P.C., he held various positions with an international accounting firm, and with regional and local CPA firms. Randy earned his Arizona CPA license in 1988, and holds a Bachelor of Science degree in Accountancy from Northern Arizona University.

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