Understanding the Small Business Health Care Tax Credit for 2016

We receive many calls from clients and prospects regarding the Small Business Health Care Tax Credit, so we thought we would provide a brief summary for 2016.  The Small Business Health Care Tax Credit is designed to encourage small businesses and small tax-exempt employers to offer health insurance coverage to their employees.


In general, an employer may be eligible for the credit for tax year 2016 if the employer:

• Had fewer than 25 full-time equivalent employees;
• Paid an average wage of less than $52,000 a year;
• Paid at least half of employee health insurance premiums; and
• Paid premiums on behalf of employees enrolled in a qualified health plan offered through the Small Business Health Options Plan (SHOP).


Employers seeking to claim the credit should know the following key facts:

• The maximum credit is 50% of premiums paid for small business employers, and 35% of premiums paid for small tax-exempt employers.  Eligible credit is on a sliding scale, depending on number of employees and average salaries.
• Small employers may claim the credit for no more than two consecutive taxable years, beginning in tax year 2014 and beyond.
• Small employers must be enrolled with SHOP/Covered California for the tax credit. If the employer is offering medical through other carriers, they may be eligible for business expense write off, and not the tax credit.
• Eligible small employers (other than those that are tax-exempt) may claim the credit on their annual income tax returns, with an attached Form 8941Credit for Small Employer Health Insurance Premiums, showing the calculation of the credit.


If you would like to further discuss the Small Business Health Care Tax Credit and how it may affect your company, please contact MNJ Insurance Solutions at (714) 716-4303.


This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.