Frequently Asked Questions: Does Your Small Business Benefits from the Affordable Care Act?

October 1, 2013, marked the beginning of the open enrollment period for the new health insurance marketplace. The Affordable Care Act, which was signed into law by President Obama on March 23, 2010, is the largest overhaul to the United States healthcare system since 1965. Although a big amount of the focus of the Act has been on the obligations and benefits the Act will afford to individuals and families, the Act affects small business owners as well. The good news is that small employers may qualify for tax credits under the Small Business Healthcare Tax Credit. To determine if your small business can take advantage of the tax credit, here is what you need to know:
1. What is the Small Business Healthcare Tax Credit?
As the Small Business Healthcare Tax Credit’s name denotes, it is a tax credit to assist small businesses with the costs of providing insurance to the employees of the business. In 2013, the credit reimburses an employer up to 35% of the premiums paid for employee insurance premiums. In 2014, the credit is increased to up to 50% of the premiums paid.
2. Who is considered a small business to qualify for the tax credit?
To qualify for the credit, a small business must meet the following requirements:
• Have less than 25 full-time employees or the equivalent;
• Have annual average wages of employees is less than $50,000;
• Pay for at least 35% of all employees health insurance premiums for 2013 (this increases to 50% in 2014); and
• Purchase health insurance plans through SHOP (Small Business Health Options Program) Marketplace.

3. What does less than 25 “full-time employee or the equivalent” mean?
Two part-time employees count as one full-time employee. So if an employer has 10 full-time employees and 28 part-time employees, the business would be eligible since it has a total of 24 employees.
4. How do I calculate the “average annual wage”?
The easiest way to calculate the annual average wage is to add up the amount of wages paid to all employees and divide the total by the number of employees. For example, if the business employs 8 full-time employees at $50,000 each and 4 part-time employees at $30,000 each, that would be $520,000 in total wages. That total divided by 10 employees (4 part-time equals 2 full-time employees) would be average wage of $52,000, which would not qualify for the credit.
5. How much of a credit can I expect?
The credit varies based on the number of employees a business employs. An employer with less than 10 employees will receive a larger credit than an employer with 24 employees.
6. Does the credit apply to small tax-exempt employers?
If you are a non-profit organization or another tax exempt employer you may also qualify for the credit. For the 2013 tax year, employers need to cover at least 25% of the premiums for employees and in 2014 the amount is increased to at least 35% of the premium amount.
7. What do I have to claim the credit?
To claim the credit you need to complete IRS Form 8941. As a small business, you will include the amount of the credit on your income tax return with your general business credit.

If you are a small business owner and do not have a firm grasp of your rights and obligations under the Affordable Care Act, contact experienced Louisiana tax attorney, Paul A. Grego. He will carefully determine if your business can benefit from the Small Business Healthcare Tax Credit and also ensure that your small business is meeting its obligations under this new legislation. To schedule your free consultation, call us today at 504-302-4949.