Small Business Health Care Tax Credit - does your Company Qualify?

September 09, 2014

Ever since the ACA law was passed in 2010, there existed a tax credit for small business owners. From 2010 - 2013, the process was a little different than today. Going forward, Employers who qualify for the tax credit MUST apply for coverage through the Small Group Health marketplace, referred to as SHOP.

As will many components of the law, the SHOP exchange was not ready to be rolled out in 2014, so the government delayed the roll out. Only a handful of states that were operating their own exchanges decided to make the SHOP marketplace available to small businesses at the beginning of 2014. However, beginning October of 2014, 5 states (DE, IL, NJ, OH, MO) will be offered the chance to 'SHOP' on the SHOP exchange for their Employer Group Health plans, and beginning in November, all states will be rolled out according to HHS. While the process is similar to going through a broker and getting quotes, Employers who don't use a broker will be able to see all plans that are available to them in their state; also, all employers will be given the option to select or name a broker they would like to work with. (FYI - Brokers have been doing this for years!...providing quotes on all the top companies in the state. Is your Broker certified to sell on the SHOP?). Only a few companies will be rolling out the "Employee Choice" option, which allows every employee to pick a different plan, and a different carrier. For most states, the Employer will be choosing one Insurance Carrier, and the employees will be picking plans from that carrier's 'portfolio' of plans.

The tax credit will be made available to companies who qualify. The company must employ less than 25 FTE employees (Full Time Equivalent, working 30 hours per week or more), and the average income of these employees must be less than $50,000, and the Employer must pay at least 50% of the Employee Premium. Owners' income can be removed from the calculation. However, for many small businesses, several highly paid managers or employees can cause the average income to be well above $50k, disqualifying them from receiving a credit. The credit is on a sliding scale, and the full credit (of 50% of premiums paid) will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 35% of the employer's contribution toward the employee's health insurance premium.

For more info, go to