It’s difficult and costly to manage a small business. The costs can go up after adding employee health care costs and incentives. But it is possible to lower a few costs that reduce the overall bills of your business tax. Government offers tax credits for small businesses offering health insurance. They can save taxes with the small business healthcare tax credit. However, some restrictions are also on the small business healthcare tax credit. So, we offer all the important information you must know to save the highest possible amount on small business tax credits in 2022.
Small Business Healthcare Tax Credit
The small business healthcare tax credit is for small businesses to save health care premiums for employees. For qualifying, small businesses need to provide a health plan for employees through the Small Business Health Options Program Marketplace (SHOP), which pays around half of the cost, with less than 25 full-time equivalent employees having an average salary lesser than $55,000. You need to file Form 8941 with the business tax return for claiming the credit.
However, the small business healthcare tax credit isn’t possible to claim after a year – You can claim it for two years.
Requirements of Small-Business Health Care Tax
The IRS definition of a small business is one with less than 25 equivalent employees (FTE) to avail of the small business healthcare tax credit. The IRS also considers FTE to be someone working at least 2,080 hours a year. Businesses with full-time employees can easily know how many full-time employees they have. But businesses with part-time employees can be considered full-time employees by counting two employees as one. For example, two employees working half-time count as full-time employees.
IRS has examples of finding FTEs for small business tax credits 2022 with full-time employees in the workforce. They take eight hours of work, five days per week, for around 52 weeks. With math, you get 2,080 hours.
|Working hours daily||Working hours weekly||Working weeks per year||Total working hours|
Businesses can also consider part-time working hours in FTEs. Also, they can include part-time and full-time employees. They can claim the credit with a total FTE count of less than 25.
|No. of employees||Daily work hours||Weekly work hours||Annual weeks||Total work hours|
Here, the average yearly salary for full-time employees can’t be higher than $54,000 (indexed inflation rate – changes each year).
Full 50% credit is meant for employees making $26,000 annually, and with the increasing salary, you’ll notice the percentage going down.
Also, in each country, you have a table with average premiums for the small business healthcare tax credit.
Who Is A Full-Time Employee?
There are many other things to look for while finding the small business healthcare tax credit. Let’s know how worth it is. It can mean higher savings for many businesses.
The credit mostly benefits small businesses with less than 10 full-time employees with an average salary lesser than $27,000. It makes them eligible for up to 50% small business healthcare tax credit of the paid fee. The percentage decreases depending on average paid salaries and the total number of FTEs.
For small business tax credits 2022 exempt employees, you must have a maximum 35% credit of paid premiums.
Businesses can find full-time or part-time work hours in three ways:
- Actual working hours: Tracking actual hours worked by an employee, like the holidays and sick time.
- Worked days: They count eight working hours as one day. Suppose an employee works 150 days a year, i.e., 1,200 hours ( 150 days x 8 hours day).
- Worked weeks: The method assumes a working week of 40 hours, and you can find it in the same way as the worked day’s method. When an employee works 45 weeks in a year with seven weeks off without getting paid, it counts as 1,800 working hours in a year.
After knowing the part-time employee hours, you can use it for calculating FTEs. For example, using worked hours, you have employees working around 30 hours weekly, with 52 weeks in a year. Use this method to know how many full-time employees it means:
- 4 employees x 30 working hours x 52 weeks in a year = 6, 240 working hours
- 6, 240/2080 = 3 full-time employees.
Four part-time employees total three full-time employees for the small business healthcare tax credit.
Terms And Conditions Of The Credit
To extend your credit limit, you should have less than ten full-time employees paid $27,000 or less than equivalent employees. Businesses can only avail of credit until they reach 25 employees threshold or have an average salary structure higher than $55,000. After crossing these limits, businesses become ineligible for this small business healthcare tax credit advantage.
Businesses also limit their small business healthcare tax credit by adding more premiums to the small market group of the employer, the Department of Health and Human Services stated. For example, even after paying higher premiums, you deduct average premiums.
You only have an employee-only health care plan of $6,000 annually, and you are paying 50% or $3,000. It is the average small business healthcare tax credit premium in the small market group. You’re limited to 50% credit of average premium in $25,00 or small group market.
Family Members And Owners Are Not Eligible
You get a notable exception for small business healthcare tax credit while counting full-time employees. Family members and their owners are not eligible as FTEs for the small business healthcare tax credit. It includes
- Sole proprietorship owner
- Partnership partner
- A business with more than 2% company shares,
- Any owner with more than 5% business
- Owner’s family members like spouses, kids, siblings, grandkids, step-siblings, nieces, step-parents, uncles and aunts, daughter-in-law or son, and father-in-law or mother
But spouses of the family members are not included as full-time employees. Almost anyone related to the owner isn’t eligible.
Company owners also can’t include small business healthcare-tax credit premiums paid for family members or the owner’s health insurance towards the credit. But the paid small business healthcare tax credit premium can be cut from taxes.
Is Small Business Health Insurance Tax-Deductible
Many businesses don’t know, “is small business health insurance tax-deductible?” Even if businesses don’t pay taxes, they can still get small business healthcare tax credit 2022 benefits. There is no upper limit on taxes you own annually. If you don’t have a taxable income, you can carry the credit backward or forward.
To get the tax credits for small businesses’ health insurance, you can take the discount and credit for the paid health insurance. But, the credit amount reduces the discount.
Claiming Small-Business Health Care Tax Credit
Businesses can claim small-business health care tax credit with Form 8941. Then, they can attach the form to the business tax return and reduce the owed tax. Remember, it is only possible to claim credit for two years. Consult your CPA to know whether you’re eligible or not. CPA will help you with the process.
You can get the best benefits for your employees and business with the small business healthcare tax credit. The cost-saving health plan is ideal for employee groups and their families. Offering incentives to your office team members is a good way to boost their work ethics. Having a happy team means having happy clients.
With these facts, you can benefit from the small business healthcare tax credit 2022 and stand out from the rest. To better understand the small business healthcare tax credit, you can consult qualified CPAs at Business Tax Benefits. We’re there to assist you with any tax-related query and customize business-specific solutions to save more costs and boost the bottom line. Contact Business Tax Benefits experts to get the most tax-saving benefits and become hassle-free.