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ACA Small-Business Tax Credit Too Good to be True?

The Affordable Care Act (ACA) has already or will drastically impact employers with 50 or more full-time employees; however, the IRS announced it will be expanding incentives – in the form of a tax credit – to small employers who offer insurance through the exchange to its employees.

2014 Changes
Under tax code Section 45R, the final regulations extended the small business tax credit for taxable years beginning in 2014. Employers with a maximum of 25 full-time equivalent employees with annual average wages not exceeding $50,800 are now eligible for a credit.

Eligible small employers can receive a maximum of 50 percent of the premiums paid on behalf of its employees under a qualifying arrangement for plans offered through a Small Business Health Options Program Marketplace. Additionally some employers may qualify for an exception to this requirement. Tax-exempt small employers such as charities can receive up to 35 percent of the premiums paid. These numbers rose from 35 and 25 percent, respectively, for the calendar years 2010-13. These credits are available to eligible employees for back-to-back taxable years.

Breaking Down the Numbers
Considering how the ACA has hit larger businesses’ pocket books hard, you may be thinking this all seems too good to be true. To break it down for you, if you pay $40,000 a year toward employees’ premiums and qualify for a 20 percent credit, you could save $8,000. Add that up over the course of the past four years and you are looking at a grand total savings of $32,000. Now considering the percentage increase, you could save even more in 2014.

It Gets Even Better
The credit can be carried forward or back to other tax years if the small business did not owe taxes during the year in which the credit was filed. Furthermore, because the amount paid for health insurance premium payments exceeds the credit, eligible businesses can claim a business expense deduction for the amount exceeding the credit; meaning some employers can enjoy the benefits of both a credit and deduction for employee premium payments.

Forgot to File?
Don’t worry if you forgot to claim your credits on previous returns because there is still time to file an amended return, though some limitations may apply. Your claim for a refund must be filed within three years from the date the return was filed or two years from the time you paid the tax.

While we can’t see far enough into the future to know if the ACA will negatively impact small businesses, what we do know is the tax credits available make it worthwhile for businesses to stand up and take note. Be sure you are able to find all the tax credits possible for your organization because as you can see they can quickly add up.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only.  It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.

About the author
Author picture, Jason Bodin
Jason Bodin
Jason Bodin has been the communications pulse for a number of organizations, including Paycom, where he serves as director of public relations and corporate communications. He helped launch Paycom’s blog, webinar platform and social media channels. He aided in the development of Paycom’s tool to assist organizations in complying with the Affordable Care Act, one of the largest changes in health care the country has seen. A graduate of the University of Oklahoma, Bodin previously worked for ESPN and Fox Sports. In his free time, he enjoys adventuring with his family, reading and strengthening his business acumen.