Getting the Most Out of the Small Business Health Care Tax Credit

In today’s hiring market, health insurance is non-negotiable. It’s the most sought-after benefit for most job-seekers. Given the rising price of healthcare and especially health insurance, it’s no surprise that workers with families place special importance on it.

However, the sheer cost of premiums can be a major problem. Small and medium-sized businesses, who rely on every advantage they can find in the search for top-talent, need to find the best possible packages without compromising their budgets.

Luckily, the federal government offers the Small Business Health Care Tax Credit to qualifying employers.

If you’re a small business employing less than 25 workers, you may qualify. Today’s blog will tell you how to make sure you’re getting the full credit you’re entitled to.

Understanding the Small Business Health Care Tax Credit

The Small Business Health Care Tax Credit is a tax incentive available to small businesses and nonprofit organizations that provide health insurance to their employees. It can potentially allow you to claim up to 50% of the premiums your business pays as a tax credit.

You have access to the credit for two consecutive years, making it a game-changer if you’re a small business owner trying to balance the cost of competitive employee benefits with a manageable budget. Here’s how it works:

Eligibility Criteria of the Small Business Health Care Tax Credit

To qualify for the tax credit, your business needs to meet several conditions:

• Workforce Size: You must have fewer than 25 full-time equivalent (FTE) employees.
• Wages: The average wage of your employees must be less than $56,000/year, a figure which is adjusted annually for inflation.
• Premium Contributions: As the employer, you must pay at least 50% of the health insurance premiums for your employees. It’s important to note that you are not required to cover family or dependent plans to qualify.

If you meet the above criteria, the health care tax credit is for you, and can potentially make a huge difference in your ability to obtain top-notch coverage at affordable rates.

Why is the Health Care Tax Credit So Important for Small Businesses?

The health care tax credit was designed to help small businesses who are already contributing to employee health insurance or are considering offering it for the first time. The idea is to reduce the financial burden on these contributions and encourage smaller companies to obtain competitive benefits packages.

This Small Business Health Care Tax Credit can help level the playing field when it comes to hiring, especially if you’re in a talent-driven industry where competition for candidates is already high.

How to Qualify for the Small Business Health Care Tax Credit

If you think you meet the criteria listed above, qualification for the health care tax credit is straightforward. Here are the steps to follow:

1. Determine FTE Employees

You’ll need to ensure you have fewer than 25 full-time or FTE employees. If your workforce includes part-time employees, you can calculate your FTE by adding together all the hours worked by part-time employees during the year and dividing it by 2,080 (the number of hours worked by one full-time employee in a year).

Note: Seasonal workers who worked fewer than 120 days should not be included in this calculation.

2. Calculate Average Wages

Your business must pay an average wage of less than $56,000 per year for each FTE. Calculate the total wages paid to all employees and divide it by the number of FTEs to determine if your business meets this threshold​.

3. Offer a SHOP Health Plan

Generally, the Small Business Health Care Tax Credit is only available if you provide insurance through the Small Business Health Options Program (SHOP). However, in some areas where SHOP plans are not available, exceptions may apply.

4. Claim Your Credit with an IRS Form 8941

The health care tax credit is claimed by filling out a Form 8941 along with your business’s annual income tax return. Tax-exempt organizations will need to file Form 990-T to claim the credit.

By following these four steps, you can take advantage of a significant reduction in health care costs. That means better coverage at better rates, attracting top talent while improving the lives of your current workforce.

Getting the Most Out of the Health Care Tax Credit with a PEO

Qualifying for the tax credit is straightforward, but that doesn’t mean the process of shopping for the right health plan for your business will be.

As an SMB owner, you may already be stretched thin with your daily operations. Finding the time to sort through hundreds of plan options and find the right one for you and your employees can be daunting – tax credit or not.

A PEO Can Streamline Your Health Insurance Shopping

A PEO can streamline the process of obtaining health insurance and help you make the most of the Health Care Tax Credit. Here’s how:

Compliance Assistance

A PEO is your best option to help you comply with IRS regulations and Affordable Care Act (ACA) requirements. That’s because a PEO has dedicated experts who take the time to keep an eye on the regulatory landscape and notify you when changes need to be made. This not only reduces your workload, but minimizes the risk of costly penalties.

Cost Savings

Additionally, a PEO will have more negotiating power when it comes to purchasing group health plans. The result is simple: you’ll have access to more plans, with richer benefits, often provided only to large corporations.

Administrative Relief

Finally, a PEO will handle the heavy lifting when it comes to your paperwork and tax filings. That includes everything related to your health care tax credit: calculating FTE, determining eligibility, and filing the necessary forms. However, it also extends to other adjacent aspects of running your business. Simplifying payroll and taxes is just another benefit of working with a PEO.

Team Up with BBSI for Access to the Best Health Care Plans at Affordable Rates

The Small Business Health Care Tax Credit is a straightforward benefit to your small business. It’s the perfect way for you to get relief on the rising cost of healthcare, especially premiums. By taking the time to ensure you qualify and submitting the proper paperwork to get the tax credit, you’ll be better positioned to take care of your current and future workforce with great health coverage.

If you’re interested in taking your health insurance offerings to the next level, BBSI can help. BBSI can provide your company with access to enhanced benefits at affordable rates, all while securing your tax credit. On top of this, they’ll take on the time-consuming tasks of ensuring compliance with federal, local, and state regulations, and the paperwork that comes along with administering healthcare plans.

Interested in teaming up? Contact your local BBSI representative today.