An often-overlooked feature of the Affordable Care Act (ACA) is the Small Business Health Care Tax Credit available to employers with fewer than 25 full-time equivalent employees that provide health coverage to those workers.
Most think of this tax credit as available only to employers who purchase a qualified health plan through a Small Business Health Options Program (SHOP) Marketplace (like Covered California). However, in states like Nevada that do not have a SHOP Marketplace, an employer can claim the credit for coverage provided outside of a SHOP Marketplace.
Qualifying employers must pay at least 50% of the cost of employee-only coverage for enrolled employees. Limits also apply to the average wage paid to employees.
The available tax credit works on a sliding scale; the smaller the employer, the bigger the credit.
If your client has more than 10 full-time equivalent employees or if the average wage is near the inflation-adjusted cap, the amount of the credit will be less. For example, if your client pays $50,000 a year toward employees’ health care premiums, and if the firm qualifies for a $10,000 credit each year, it can save $20,000 over the course of two years.
Additional information is available using the following links:
- IRS Web Page: Small Business Health Care Tax Credit
- IRS Notice 2018-27 (PDF): Section 45R – Relief with Respect to the Tax Credit for Employee Health Insurance Expenses of Certain Small Employers
- IRS Web Page: Small Business Health Care Tax Credit Questions and Answers
While a qualifying employer can claim the Small Business Tax Credit for only two consecutive years, it could be especially helpful to start-up and lower income groups. Share the news with your clients and prove your value as a health insurance pro.