Maximizing IRS Tax Credits for US Small Employers
Overview of IRC Section 45R
Created under the Affordable Care Act, the Small Business Health Care Tax Credit specifically offsets the cost of health coverage for small employers across the United States. Unlike a mere tax deduction which lowers taxable income, this is a direct dollar-for-dollar tax credit against your federal income tax liability.
The Three Mandatory IRS Eligibility Rules
- Rule 1 (FTE Count): Have fewer than 25 full-time equivalent (FTE) employees during the tax year (two part-time workers working 15 hours/week count as one FTE).
- Rule 2 (Average Wages): Pay average annual wages of less than ~$56,000 to $60,000 per FTE (adjusted annually for inflation by the IRS). The maximum credit goes to employers with 10 or fewer FTEs earning an average of $30,000 or less.
- Rule 3 (Employer Contribution): The business must contribute at least 50% of the employee-only premium cost for each enrolled worker.
How Much Can Your Business Save?
- For-Profit Small Businesses: Eligible for a credit of up to 50% of employer-paid health insurance premiums.
- Tax-Exempt 501(c)(3) Nonprofits: Eligible for a credit of up to 35% of employer contributions, claimed as a refund against payroll taxes.
Claiming the Credit on IRS Form 8941
Your certified public accountant (CPA) claims this credit using IRS Form 8941 (Credit for Small Employer Health Insurance Premiums). Diverse Health Insurance works directly with your accountant to provide the required carrier certification documents.
