Small employers can retroactively claim Small Business Health Care Tax Credit for years prior to 2014, says IRS

Small employers may still be eligible to claim the Patient’ Protection and Affordable Care Act’s (ACA) (P.L. 111-148) Small Business Health Care Tax Credit for tax years prior to 2014, according to a recent tax tip from the IRS. Employers that were eligible to claim this credit for prior years, but did not do so, should determine if they are still eligible to amend prior year returns in order to claim the credit.

Background. Section 1421(a) of the ACA created the Small Business Health Care Tax Credit, which provides a tax credit to employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $51,600. Those employers are eligible for the credit if they cover at least 50 percent of their full-time employees’ premium costs, and the coverage is purchased through the Small Business Health Options Program (SHOP) marketplace.

Fast facts. Here are some facts provided by the IRS to help understand the tax credit:

• Credit percentage is 50 percent of employer-paid premiums; for tax-exempt employers, the percentage is 35 percent.
• Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
• For 2015, the credit is phased out beginning when average wages equal $25,800 and is fully phased out when average wages exceed $51,600. The average wage phase out is adjusted annually for inflation.
• Generally, small employers are required to purchase a qualified health plan (QHP) from a SHOP marketplace to be eligible to claim the credit. However, transition relief from this requirement is available to certain small employers.

To fill out Form 8941, Credit for Small Employer Health Insurance Premiums, a small employer needs the following information:

• 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; and
• Pass-through credit info—for K-1s of other small employers.

SOURCE: IRS Health Care Tax Tip 2016-20, February 17, 2016.

Visit our News Library to read more news stories.