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ACA Update: Will You Lose Your Health Insurance Tax Credit in 2014? November 06, 2013 (0 comments)
St. Paul, MN—Under the Affordable Care Act (aka Obamacare), starting in 2010 small businesses that qualify have been eligible to receive a tax credit for up to 35% of the cost of the premiums they pay for employee health care coverage. Qualifying businesses are those with 25 or fewer full-time equivalent employees, who pay an average wage of less than $50,000 per year, and who pay at least half of employee-only health care insurance premiums.
In short, many independent jewelers qualify.
Beginning in 2014, the tax credit they receive towards employee healthcare premiums actually will increase to 50% of their premium costs from the previous 35%, and the credit may be carried back or forward to other years for businesses that have no tax liability in a given year. And small businesses still can claim a business expense deduction for the cost of premiums that the tax credit does not cover.
For tax purposes, the IRS counts full-time equivalent, not just full-time employees. So two half-time employees count as one full-time employee. The credit also works on a sliding scale: the smaller the business, the bigger the credit.
But the good news comes with an important caveat: the business must purchase health insurance for employees by enrolling in a health insurance plan offered through a Small Business Health Options Program (SHOP) Marketplace. Businesses who simply renew their current policy—unless it is also one offered on the Marketplace—will find their tax credit disappears.
Still, it may be worth giving up the credit if their current policy is cheaper than a comparable one offered through SHOP. At the very least, it’s worth taking time to compare plans, according to this article by certified public accountants OlsenThielen. An insurance broker can easily compare the costs of various private policies, but it may be up to the business owner to compare the SHOP Marketplace options.
The IRS website also offers this simplified explanation page to help small businesses better understand the tax credit, which goes into effect January 1, 2014.
Top image: Moneyplanetconsulting.net