LAW OF THE LAND: Small business health care tax credit

William L. "Bill" Martin III Issues

The Affordable Care Act, popularly, or unpopularly, known as “Obamacare,” includes a small business health care tax credit, which can benefit small employers who provide health coverage to their employees.

The small business health care tax credit applies to employers who:

  • have fewer than 25 full-time equivalent employees
  • pay an average wage of less than $51,600 a year
  • pay at least half of employee health insurance premiums

The following facts illustrate the impact that this credit can have on a small business or tax-exempt organization.

Credit percentage is 50 percent of employer-paid premiums; for tax-exempt employers, the percentage is 35 percent.

Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.

For 2015, the credit is phased out beginning when average wages equal $25,800 and is fully phased out when average wages exceed $51,600. The average wage phase out is adjusted annually for inflation.

Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit. Transition relief from this requirement is available to certain small employers.

Small employers may still be eligible to claim the tax credit for tax years prior to 2014. Employers who were eligible to claim this credit for prior years — but did not do so — may amend prior year returns in order to claim the credit.

About the Author
William L.

William L. "Bill" Martin III

Bill Martin is a former United States Air Force pilot and senior attorney for the Federal Deposit Insurance Corporation. He is currently a partner in the law firm of Keefe, Anchors & Gordon in Fort Walton Beach, Fla.