New York State Tax

Small Business Health Care Tax Credit

A health care tax credit went into effect when President Obama signed the Patient Protection and Affordable Care Act on March 23, 2010 as part of a massive overhaul of the U.S. healthcare system; a tax credit for small business health insurance is one component of the law. The Act is a controversial piece of legislation and the Supreme Court hears arguments on its constitutionality in March 2012.

Tax credits are available for companies that pay at least 50 percent of the health insurance premium for single - not family - coverage for each employee and have fewer than 25 full-time employees with average salaries less than $50,000. For eligibility purposes, two half-time employees equal one full-time. Calculate the average salary by dividing the amount of total wages by the number of full-time employees. The maximum tax credit is 35 percent for small business employers and 25 percent for small tax-exempt employers. These percentages increase on Jan. 1, 2014, to 50 percent and 35 percent.

For a qualified company that pays less than $50,000 in health insurance premiums, the maximum tax credit for 2012 is $17,500. If the company doesn't pay that much in tax, the excess carries backward or forward to offset costs in other tax years. Tax-exempt companies may be able to claim the credit as a refund. In addition, the difference between the total cost of the premiums and the amount of tax credit is a deductible business expense.

In 2014, an enhanced version of the law takes effect. If the program executes as planned, state-regulated health insurance exchanges will be established and function as co-ops; individuals and small businesses will band together and purchase health insurance from companies chosen by the exchange at the discount rates offered to larger companies.

Companies use IRS Form 894 -- Credit for Small Employer Health Insurance Premiums -- to calculate the amount of qualifying credit. Small businesses report this amount as a general business credit on the tax return, and tax-exempt companies report the credit on IRS Form 990-T -- Exempt Organization Business Income Tax Return. Failure to submit Form 990-T prevents the company from claiming a refund of the tax credit.

If you need help filing your corporate tax return or have other questions regarding federal or state tax, you can use these links to find professional bookkeepers, accountants and Certified Public Accountants in your area.