Build Back Better – Tax Credits

If you own a small business and are enrolled in the Small Business Health Options Program (SHOP), you may be eligible for the Small Business Health Care Tax Credit. Tax credits are designed by the U.S. federal government to help small businesses contribute to their workers’ health benefits with lower health insurance premiums. This program can save up to 50 percent of employees’ premium contributions and up to 35 percent for non-exempt employers.

However, not all small businesses qualify for these exclusive tax savings. As a small employer, you must meet certain company size requirements to qualify for tax credits. Before highlighting the requirements, let’s first discuss the different types of tax credits.

Types of Tax Credits

Nonrefundable Tax Credits

A nonrefundable tax credit is a credit that reduces a taxpayers’ liability to zero. Generally, liability cannot go beyond zero, and it cannot be paid out to the taxpayer, hence the name “nonrefundable”.

Nonrefundable credits are applicable within the reporting year and often expire when the return is filed – and will not be carried forward to the following year. For that reason, nonrefundable tax credits may not work well with low-income taxpayers. Examples of these tax credits include child tax credit, education credit, mortgage interest credit, and adoption credit.

Refundable Tax Credits

These tax credits are usually paid out in full, making them the most beneficial tax credits. No matter the tax liability or income, a taxpayer receives the total amount of the credit. A typical example of a refundable tax credit is the EITC- the Earned Income Tax Credit, which is common with low to medium-income taxpayers employed or working as self-employed individuals.

Partially Refundable Tax Credits

These are tax credits that are not fully refunded. Specific examples include the American Opportunity Tax Credit and Child Tax Credit.

The Company Size Requirements to Qualify for a Health Care Tax Credit?

To qualify for a health care tax credit, you must be a small employer with less than 25 full-time equivalent (FTE) employees during the tax year. Your company should also fulfill the following requirements:

  • Pay average wages of not more than $56,000 annually for each full-time employee.
  • Pay a minimum of 50 percent of the cost of the employee-only category for all the employees.
  • Provide a qualified health policy ? this does not make sense to me to your employees through the SHOP marketplace. This rule might have a few exceptions, though.

Eligible small companies can claim their tax credits through the Internal Revenue Service by utilizing  (IRS) Form 8941.  The form is called Credit for Small Employer Health Insurance Premiums.  After calculating your tax credit, you will incorporate the amount of the business credit as part of your income tax return.

Tax-exempt companies highlighted in 501(c) under the IRS Code that otherwise fulfill the specifications of an eligible employer may qualify for this tax credit. Although the tax credit is refundable for tax-exempt organizations, it is restricted to the amount of the employer’s payroll taxes owed during the current financial year. If you’re a tax-exempt employer, you should include the amount in Form 990-T Exempt Organization Business Income Tax Return to claim your tax credit.

Contact DesignTM Health

If you’re a small employer in Colorado and think that you qualify for a tax credit, DesignTM Health can assist you. We’ll work with you to understand your goals and objectives.  We can create a customized strategy based on the unique needs of your business and employees. Please fill out our online contact form to get started. Can we provide our phone number and ask them to call instead?

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