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March 2013 | Taking Advantage of Health Care Tax Credits

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Taking Advantage of Health Care Tax Credits

Qualifying small businesses can save big—if they plan for it

As the Patient Protection and Affordable Care Act (PPACA) sends large companies scrambling to secure health coverage for employees, small business owners are missing the opportunity for significant tax breaks.

A recent survey conducted by eHealthInsurance revealed 85% of small business owners are undertaking no long-term planning for the expected impact of PPACA, which means they could be missing out on tax credits up to 35% in 2013 and up to 50% beginning in 2014.

So, how can small businesses take advantage of new health care tax credits? Organizations qualify if they meet three criteria:

  • Employ less than 25 full-time-equivalent (FTE) employees. (The IRS offers a simple rule of thumb for calculating FTEs for tax credit eligibility: two half-time workers equal one FTE.)
  • Pay at least 50% of employees' health insurance premiums.
  • Pay an average wage of less than $50,000 per year.

Beyond a tax credit percentage, the Small Business Health Care Tax Credit also allows qualifying businesses to carry the credit forward or backward to other tax years and claim a business expense deduction for health insurance premiums paid in excess of the credit, creating a tax package that could be a boon to many small businesses.