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The Small Employer Health Insurance Tax Credit
By: Mark E. Battersby
Posted: January 31, 2014, from the February 2014 issue of Skin Inc. magazine.
For many professional skin care facility owners, offering health insurance is critical to attracting the kind of team members needed to succeed. Fortunately, whether the skin care facility presently offers health insurance or is merely considering offering it, there is a sliver of silver lining in the form of a unique, often-overlooked tax credit for small employers.
Created as part of the Affordable Care Act (ACA), otherwise known as the controversial Obamacare, the Small Employer Health Insurance Tax Credit is already benefiting businesses with 25 or fewer employees. A skin care business that provides health care coverage is eligible for this credit if, for the tax year, they have 25 or fewer full-time equivalent (FTE) employees who are paid an average annual salary of less than $50,000. The tax credit is higher the lower the average salary is and the fewer FTEs the skin care facility employs. The maximum credit is 35% this year and rises to 50% of the annual premium paid for 2014 and beyond.
Although any qualifying skin care business is eligible to receive the Small Business Health Care Tax Credit, it works on a sliding scale and is specifically targeted for those businesses with low- and moderate-income workers. According to the U.S. Internal Revenue Service’s (IRS) Guidelines, in order to take advantage of this tax credit, small employers must have an arrangement in place through which the skin care business can make a contribution on behalf of each employee who enrolls in a qualified health plan offered by the employer.
The IRS has said certain higher-income individuals, specifically sole proprietors; those in partnerships; or shareholders owning more than 2% of the stock in an S corporation—a corporation that elects to pass corporate income, losses, deductions and credits through to its shareholders for federal tax purposes—and any owners of more than 5% of other businesses, do not have to be counted as employees when calculating the average wage. And, although the tax law does not specifically refer to spouses, the IRS says that spouses are nevertheless excluded from the definition of an employee for those purposes.
What’s more, all qualifying businesses are eligible to buy health insurance on a special exchange known as Small Business Health Options Program (SHOP). Small employers that want to make health insurance coverage available to their employees can choose coverage from SHOP. Commencing in 2016, SHOP will be open for employers with as many as 100 FTEs.
Every skin care facility owner will see a number of important changes to the tax credit for tax years beginning in 2014 and beyond. Another difference involves the two-year limit on taking the credit. Before 2014, there was no time limit on taking the credit, so employers that qualified could have taken it anytime between 2010–2013. Beginning in 2014, there is a two-year limit, which begins with the first year the employer files Form 8941: Credit for Small Employer Health Insurance Premiums. However, employers who took the credit before 2014 can take the credit for two more years in 2014 and beyond.
As the tax filing deadline approaches for many small skin care businesses, owners and managers are looking for ways to reduce their business’s tax bills. Although the ACA does not require that businesses provide health insurance, it does offer tax credits for eligible small businesses that choose to provide insurance to their employees for the first time, or maintain the coverage they already have.
Mark E. Battersby has been providing professional prepared editorial material for magazines, newsletters, reports and websites for more than 25 years. Each week, his topical columns are syndicated in more than 65 publications. He also writes monthly columns for 14 trade magazines and has authored four books.