Qualifying small businesses can earn a tax credit of up to 50 percent -- the previous limit was 35 percent - to offset health insurance costs under new regulations just issued by the Internal Revenue Service (IRS).
There's little doubt that many business owners are confused about health reform. A recent survey by the U.S. Chamber of Commerce indicated that about a quarter of employers didn't fully know their responsibilities under the Patient Protection and Affordable Care Act (ACA).
To that end, the IRS in late August issued new ACA regulations affecting smaller businesses, those with fewer than 25 employees who make an average wage of less than $50,000 a year, clarifying which employers would qualify for tax credits. One of the key changes is the increase in the amount of tax credits to offset the health insurance costs provided to workers.
From 2010 through 2013, the credit can reach 35 percent of the non-elective medical insurance contributions made on behalf of employees, with 25 percent for tax-exempt organizations like charities, according to the IRS. The recent changes, taking effect Jan. 1, 2014, raise the maximum credit to 50 percent (35 percent for tax-exempt groups).
If you are a small business owner who did not owe tax during the year, you can carry the credit back or forward to other tax years, according to the IRS guidelines. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit -- that's both a credit and a deduction for employee premium payments.
Additionally, the new regulations allow businesses with insurance plans that don't begin on Jan. 1 to be eligible for a tax credit if they buy health insurance from the small business exchange at some point during 2014.
Here are other key points, as detailed by the IRS:
The IRS, on its website, gave an example of the possible benefits: "If you pay $50,000 a year toward workers' health care premiums, and if you qualify for a 15 percent credit, you save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that's a total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year."
In a recent survey of 33,000 members of 136 commercial health plans countrywide, J.D. Power found that 73 percent of consumers who don't get coverage through an employer "definitely will" or "probably will" use exchanges to secure medical protection.
So, what if you're self-employed or otherwise need to buy health insurance on your own as the ACA takes effect? J.D. Power has these suggestions:
HealthCare.gov also has relevant information that may be useful.
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