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Small Business Tax Savings Credit Explained

  Sanjiv Gupta CPA  Published 
Small Business Tax Savings Credit Explained

How to claim the Small Business Tax Savings Credit?

The small business employers are given excellent benefits in the Affordable Care Act. These small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.

What is the small business tax savings credit?

According to the Affordable Care Act, small business employers, and small tax-exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013. These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).

These tax credits can be carried back or forward to other years also thus helping small business employers in a big way. The health insurance premiums that they pay to employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and deductions that they are due to get.

What exactly is a small business?

The explanation of the tax credits mentions small business employers on every page. However, there are certain rules to explain to who this small business employer. To qualify for the double whammy, one needs to fulfill the following conditions: a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full-time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full-time employee and c) These employees must be paid less than $50,000 a year as wages.

Claiming the credit

The small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.

All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paperwork, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help employers in a big way as they don’t feel the burden of huge healthcare expenses.