Did you know you could be eligible for a tax credit?
As a small-business owner, you may qualify for a federal tax credit to help offset the cost of providing health insurance to your employees by purchasing coverage with Covered California for Small Business. To qualify for a tax credit, employers must contribute at least 50 percent of their employee premium costs.
Currently, federal tax credits are only available to small businesses that purchase health insurance through Covered California for Small Business. The maximum available tax credit is 50 percent of insurance premium expenses and is available for a total of two consecutive years.
Calculating Your Tax Credit
Your tax credit will depend on a number of factors, including the number of full-time-equivalent employees you have and the amount you contribute toward premiums. Generally, small businesses that have fewer than 25 full-time-equivalent employees and pay an average annual salary of less than $54,000* a year will be eligible for the tax credit. Employers with fewer than 10 full-time-equivalent employees with wages averaging less than $26,000 per year may be eligible for the maximum tax credit amount.
The maximum tax credit available is 50 percent of premium expenses, and the maximum credit for tax-exempt employers is 35 percent. Small businesses must purchase health insurance through Covered California for Small Business to be eligible for the tax credits offered.
|Tax Year||Maximum Tax Credit as a Percentage of Premium Expenses||Maximum Tax Credit for Tax-Exempt Organizations as a Percentage of Premium Expenses|
Tax credit available for two consecutive tax years.
Maximum Tax Credit as a Percentage of Premium Expenses
Maximum Tax Credit for Tax-Exempt Organizations as a Percentage of Premium Expenses
The amount of the tax credit cannot exceed the total income and Medicare tax the employer is required to withhold from employees’ annual wages, plus the employer’s share of the Medicare tax.
|Example of Small Business Receiving Tax Credit for Health Insurance: Beauty Shop with 10 Full-Time-Equivalent Employees|
|Employees||10 full-time-equivalent employees|
|Wages||$260,000 total, or an average of $26,000 per employee*|
|Employee Health Insurance Cost||$70,000|
|Tax Credit (Year 1)||$35,000 (50%)|
|Tax Credit (Year 2)||$35,000 (50%)|
|Tax Credit (Year 3)||Not eligible for tax credit|
To verify that your small business is eligible for a federal tax credit, please consult a professional tax adviser. More information can also be found in the instructions for Form 8941: Credit for Small Employer Health Insurance Premiums.
*Federal tax credits based on 2018 tax year information.