Changes to Small Business Health Care Tax Credit

IRS Health Care Tax Tip 2015-13, February 26, 2015

Small employers should be aware of changes to the small business health care tax credit, a provision in the Affordable Care Act that gives a tax credit to eligible small employers who provide health care to their employees.

Beginning in 2014, there are changes to the tax credit that may affect your small business or tax-exempt organization:

• Credit percentage increased from 35 percent to 50 percent of employer-paid premiums; for tax-exempt employers, the percentage increased from 25 percent to 35 percent.
• Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
• For 2014, the credit is phased out beginning when average wages equal $25,400 and is fully phased out when average wages exceed $50,800. The average wage phase out is adjusted annually for inflation.
• Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit.  Transition relief from this requirement is available to certain small employers.

Small employers may still be eligible to claim the tax credit for tax years prior to 2014.   Employers who were eligible to claim this credit for prior years – but did not do so – may consider if they are still eligible to amend prior year returns in order to claim the credit.*

The following information will assist you in completing Form 8941, Credit for Small Employer Health Insurance Premiums PDF.  

• SHOP QHP documentation or letter of eligibility from SHOP, unless transition relief applies
• Numbers of full-time and part-time employees and numbers of hours worked
• Average annual wages for employees
• Employer premiums paid per employee, if applicable
• Relevant K-1s and other pass-through credit information
• Cost of coverage for each employee
• Payroll tax liability – for tax-exempt organizations only
• Pass-through credit info – for K-1s of other small employers

For more information about the Affordable Care Act and filing your 2014 income tax return, visit IRS.gov/aca.

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*Note: The original sentence in the text regarding the filing of an amended return to claim the credit for years prior to 2014 was revised to improve clarity. February 26, 2015