healthcare2014 program has been expanded if you shop through S.H.O.P.

Here is some good news! Starting in 2014, the maximum small business health care tax credit has been expanded from 35% to 50% of employee premium costs, or up to 35% for exempt employees. To receive credits, you’ll need to offer Affordable Care Act (Obamacare) health care exchanges, also referred to as the Health Insurance Marketplace.

Regardless of your tax credit status, you are also required to provide written notice to your employees by October 1 of the options available through the Health Insurance Marketplace.

Larger credits for smaller businesses

While the greatest benefits are for companies with less than 10 employees, you may qualify for tax credits if you:

  • Have a small business or non-profit organization
  • Employ fewer than 25 full-time equivalent employees
  • Pay average annual wages of less than $50,000
  • Pay a uniform percentage of at least 50% of health care premiums. Note that you don’t need to offer coverage to your part-time employees or to dependents.

Understand the IRS rule changes

While most of the rules remain unchanged, there are a few notable modifications. Starting in 2014, the credit is limited to health plans offered through a SHOP Marketplace. SHOP is the acronym for Small Business Health Options Program, a new government program designed to simplify the process of buying health care insurance. Each state’s SHOP Marketplace will allow employees to compare the price, coverage, and quality of health care plans in an apples-to-apples format, and enroll online.

Flexible tax credits and deductions

Even if you don’t owe tax during a particular year, you can carry any eligible credits forward (or backward) to other years. Credits may also be refundable for tax-exempt employers, as long as the total does not exceed income tax withholding and Medicare tax liability. The rest of your health care cost may still be deductible like before, so this represents an opportunity for both tax credits and deductions.

Open enrollment starts on October 1

If your company is covered by the Fair Labor Standards Act (at least 1 employee and $500K of revenue), you must provide written notice to your employees by October 1, 2013 about coverage options under the state and federal health benefits exchanges.

Like other regulation associated with health care reform, this is complicated and will probably present unforeseen challenges that will take time to resolve. You don’t have to wait for open enrollment or wade through IRS tax regulations. Contact a qualified accountant like the CPAs at Bach, James, Mansour & Company. We will help you determine eligibility, tax credits, and deductions.

Neal Bach, CPA

Sources of information for this article include:

  • www.healthcare.gov – a federal government website managed by the US Centers for Medicare & Medicaid Services.
  • www.irs.gov – details on small business tax credit rules and regulations.
  • http://www.adp.com – great source of tools and resources for small businesses.