If you’re a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.

What is the Small Business Health Care Credit?

The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.

How Does the Credit Save Me Money?

The tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,900 or less in 2016 ($26,200 in 2017). The smaller the business, the bigger the credit is. For example, if you have more than 10 FTEs or if the average wage is more than $25,900, the amount of the credit you receive will be less. For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Note: The credit is available only if you get coverage through the SHOP Marketplace.

If you pay $50,000 a year toward workers’ health care premiums–and you qualify for a 15 percent credit–you’ll save $7,500. If you save $7,500 a year from tax year 2013 through 2016, that’s a total saving of $30,000. And, if in 2017 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

Is My Business Eligible for the Credit?

To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs) and those employees must have average wages of less than $50,000 a year. This amount is adjusted for inflation annually and in 2016 was $52,000.

Let’s take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10, not 20.

Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10–the number of FTEs–and the result is your average wage. In this example, the average wage would be $20,000.

Can Tax-Exempt Employers Claim the Credit?

Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Can I Still Claim the Credit Even If I Don’t Owe Any Tax This Year?

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

Can I File an Amended Return and Claim the Credit for Previous Tax Years?

If you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

Businesses that have already filed and later find that they qualified in 2014 or 2015 can still claim the credit by filing an amended return for one or both years.

Don’t hesitate to call if you have any questions about the small business health care credit. And, if you need more time to determine eligibility this year we’ll help you file an automatic tax-filing extension.

• By Leon Clinton
• April 11, 2017

April 10

Employees who work for tips – If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.

April 18

Individuals – File an income tax return for 2016 (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return or you can get an extension by phone if you pay part or all of your estimate of income tax due with a credit card. Then file Form 1040, 1040A, or 1040EZ by October 16.

Household Employers – If you paid cash wages of $2,000 or more in 2016 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. Also, report any income tax you withheld for your household employees.

Individuals – If you are not paying your 2017 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2017 estimated tax. Use Form 1040-ES.

Corporations – File a 2016 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes.

Corporations – Deposit the first installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.

May 1

Employers – Social Security, Medicare, and withheld income tax. File form 941 for the first quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return.

• By Leon Clinton
• April 10, 2017

The Affordable Care Act contains two provisions that may affect your tax return this year: the individual shared responsibility provision and the premium tax credit. Here’s what you should know:

Information Forms: 1095-A, 1095-B, and 1095-C

This year marks the first time that certain taxpayers will receive new health-care related information forms that they can use to complete their tax return and then keep with their tax records.

These forms are used to report health coverage information for you, your spouse and any dependents when you file your 2016 individual income tax return this year. These forms are also filed with the IRS. Depending upon your specific circumstances, (i.e. whether you receive health insurance from the Health Insurance Marketplace, health coverage providers, or certain employers), you should have received one or more of these forms in early 2017. There are three types of information forms:

Form 1095-A, Health Insurance Marketplace Statement. The Health Insurance Marketplace sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.

Form 1095-B, Health Coverage. Health insurance providers (e.g. health insurance companies) send this form to individuals they cover, with information about who was covered and when.

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when. The deadline for coverage providers to provide Forms 1095-B and employers to provide Form 1095-C was March 2, 2017 (a 30-day extension from the original January 31 filing date for 2017).

Some taxpayers may not have received a Form 1095-B or Form 1095-C by the time they are ready to file their tax return. It is not necessary to wait for Forms 1095-B or 1095-C in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns.

Tip: You do not need to attach these forms to your income tax return.

Individual Shared Responsibility Provision

The individual shared responsibility provision requires everyone on your tax return (you, your spouse, and dependents) to have qualifying health care coverage for each month of the year or have a coverage exemption. Otherwise, you may be required to make an individual shared responsibility payment.

The key elements of the individual shared responsibility provision are as follows:

• If you maintain qualifying healthcare coverage for the entire year, you don’t need to do anything more than report that coverage on your federal income tax return by simply checking a box. Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, coverage through most government-sponsored programs, as well as certain other specified health plans.

• If you go without coverage or experience a gap in coverage, you may qualify for an exemption from the requirement to have coverage (see below). If you qualify for an exemption, use Form 8965, Health Coverage Exemptions, to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.If for any month during the year you don’t have qualifying coverage and you don’t qualify for an exemption, you will have to make an individual shared responsibility payment when you file your federal income tax return.
• In 2016, the penalty is $695 per person for the year ($347.50 per child under 18) or approximately 2.5 percent of your yearly household income, whichever is higher, and is indexed for inflation, thereafter.The instructions for Form 8965, Health Coverage Exemptions, provide the information needed to calculate the payment that will be reported on your federal income tax return.

Health Coverage Exemptions

Individuals who go without coverage or experience a gap in coverage may qualify for an exemption from the requirement to have coverage.

• You may qualify for an exemption if one of the following applies:
  • You do not have access to affordable coverage
  • You have a one-time gap of less than three consecutive months without coverage
  • You qualify for one of several other exemptions, including a hardship exemption

How you get an exemption depends on the type of exemption. You can obtain some exemptions only from the Marketplace in the area where you live, others only from the IRS when filing your income tax return, and others from either the Marketplace or the IRS.

If you qualify for an exemption, you use Form 8965 to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.

Premium Tax Credit

The premium tax credit (PTC) is a credit that helps eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace. Claiming the premium tax credit may increase your refund or lower the amount of tax that you would otherwise owe.

If you did not get advance credit payments in 2016, you can claim the full benefit of the premium tax credit that you are allowed when you file your tax return. You must file Form 8962, Premium Tax Credit, to claim the PTC on your tax return.

Need More Information?

Please call the office is you would like more information about the premium tax credit or the individual shared responsibility payment.

• By Leon Clinton
• April 8, 2017