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Small Business Health Insurance Tax Credit: Update

Though this tax credit has been available since 2010 the rules have changed.

To be eligible for this credit and employer is required to:

  1. Pay employee health insurance premiums under a qualifying arrangement.  A qualifying arrangement would require the employer to pay at least 50% of the premium for each employee enrolled in the coverage provided by the employer.  The employer is not required to pay the same percentage for each employee.
  2. Employers must obtain the insurance through the Small Business Options Program (SHOP).
  3. The employer's premium contribution is limited to the average cost of health insurance determined by area or state. For 2013 Minnesota's average cost for singles was $5,588 and $14,077 for families.
  4. Have fewer than 25 full time equivalent employees, and
  5. Pay average annual wages of less than $50,800 per full time equivalent employee.

The maximum credit is 50% of the employer's contribution to toward the employee's premiums, and can be claimed for up to two years.  The credit begins to phase out with annual wages starting at $25,400 and/or 10 full time equivalent employees, and is completely phased out at $50,800 and/or 25 full time equivalent employees.  The credit can be claimed using Form 8941, but any credit received must reduce the company's health insurance premium expense deduction.

If you think you qualify for this credit or have questions, please consult your tax advisor.

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