If you are the owner of a small childcare business and you pay the health insurance premiums on behalf of employees who are enrolled in a qualified health plan, you may be eligible to receive the Small Business Health Insurance Credit. In the following guide, we provide an overview of the Small Business Health Insurance Credit, including what it is, who is eligible, and how to claim your deduction. Read on to find out more.
What Is the Small Business Health Insurance Credit?
As the owner of a childcare business and an employer, you already know how expensive it can be to offer health insurance to your employees. The cost can be especially prohibitive to small businesses, which is why the federal government, under the Affordable Care Act (ACA) of 2010 made provisions that would encourage small business owners to provide health insurance options for their employees. The Small Business Health Insurance Credit is one of the provisions outlined by the Affordable Care Act.
The Small Business Health Insurance Credit is a federal tax credit offered to qualified small business owners who pay their employees’ health insurance premiums. It is a tax credit that operates on a sliding scale, meaning that the larger the employer, the smaller the tax credit. The tax credit is available to qualified small businesses as well as small tax-exempt organizations.
Who Qualifies for the Small Business Health Insurance Credit?
So how do you know if you qualify for the small business health insurance credit? The IRS outlines the following requirements to determine eligibility for the tax credit:
- Your business must employee fewer than 25 full-time equivalent employees.
- Your business must pay an average of less than $50,000 a year per full-time equivalent employee, adjusted for inflation each year beginning in 2014.
- Your business must offer a qualified health plan to your employees through a Small Business Health Options Program Marketplace (SHOP Marketplace).
- Your business must pay at least 50 percent of the cost of employee-only (not family or dependent) health care coverage for each employee.
You can learn about qualified health insurance plans offered through the SHOP marketplace at Healthcare.gov.
Who Does Not Qualify for the Small Business Health Insurance Credit?
In addition to the above requirements, the IRS specifies several groups that do not qualify for the Small Business Health Insurance Credit. In addition to holding small business status with fewer than 25 full-time equivalent (FTE) employees, business owners may not include the health insurance premiums paid on behalf of the following employees to calculate their health care tax credit:
- Owner of a sole proprietorship
- Partner in a partnership
- Shareholder of an S Corporation owning more than 2 percent
- Owner of more than 5 percent of the business or other businesses
- Family members of any of the above
Thus, as a childcare business owner, you may only qualify for the small business health insurance credit if you exclude these categories of employees in your full-time equivalent (FTE) employee calculations.
How Can I Claim the Small Business Health Insurance Credit?
If your small childcare business meets all the requirements outlined by the IRS for qualified small businesses, you will need to fill out Form 8941, Credit for Small Employer Health Insurance Premiums.
Form 8941 will instruct you to calculate the full-time equivalency (FTE) of the employees whose health premiums you will count toward your tax credit.
In addition, Form 8941 will prompt you to calculate the average annual wages you pay to your employees.
Overwhelmed by the thought of calculating full-time equivalency for your employees or your business’s average annual wages? The tax experts at Honest Buck Accounting can help. Schedule a call with one of our friendly, professional accountants today and find out how we help childcare business owners like you determine their eligibility for a variety of government tax credits, including the small business health insurance credit.