Simplifying the Complex Calculations of the Health Insurance Tax Credit by Adam Cohen

Posted on February 27, 2014 by Adam Cohen

The Affordable Care Act does not require small businesses with 25 or fewer employees to offer health care coverage to their employees. However, those that do offer workers medical insurance may benefit from a tax credit of up to 50 percent of the costs of premiums paid in 2014, up from 35 percent in 2013. Despite this incentive to help small businesses afford health care benefits for employees, the law requires employers meet very specific standards and conduct very complex calculations to qualify for the tax credit.

To claim the small-business tax credit, employers must first meet the following criteria:

• Have fewer than 25 full-time-equivalent employees (FTEs) during the tax year

• Pay annual wages of less than $50,800 per FTE (inflation-adjusted for tax years beginning in 2014)

• Pay at least 50 percent of the premiums for each employees’ qualified health plan coverage

• Claim the credit for a maximum of two consecutive tax years after 2013.

While these conditions of eligibility appear simple and straight-forward, small-business owners will find additional restrictions to consider and provisions they must meet in order to take advantage of the available credit. For example, the maximum number of 25 allowable FTEs excludes business owners, their spouses and family members, even if they work for the business. Additionally, when computing employees’ hours of service, small businesses may not include the hours of employees who work less than 120 days or more than 2,800 hours per year. Conversely, tallying hours of service may include the hours for which employees receive paid vacation, sickness and disability.

Small-business owners focused on growing their enterprises have neither the time nor the patience to jump through all of the complex hoops associated with meeting the eligibility requirements of the small-business health care tax credit. The Tax Services practice with Berkowitz Pollack Brant helps businesses of all sizes understand and comply with the Affordable Care Act, including helping small businesses determine their eligibility and the calculation of a potential tax credit, whether it is a full or partial benefit.

About the Author: Adam Cohen CPA is an associate director in the Tax Services practice of Berkowitz Pollack Brant. For additional information, call (954) 712-7000 or e-mail