The Small Business Health Care Tax Credit, enacted in 2010 as part of the Affordable Care Act, enables small business owners/employers that provide health insurance coverage to their employees to claim a credit on their tax return if they qualify. Eligible employers could claim the credit for 2010 through 2013, and for subsequent tax years the credit is available only for a 2-consecutive-tax-year credit period.
The maximum credit is 50% of premiums paid for small businesses and 35% for tax-exempt organizations. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the credit.
Eligible small employers can use Form 8941 to figure the credit. An eligible small employer is an employer meeting all three of the following requirements for the tax year:
- Paid premiums (not less than 50% of the premium cost) for employee health insurance under a qualifying arrangement.
- Had fewer than 25 full-time equivalent employees (FTEs) for the tax year.
- Paid average annual wages for the tax year of less than $54,000 per FTE.
To access Form 8941 in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- General Business Credit - 3800
- Current Year General Business Credits
- Form 8941
Note that there are several worksheets in the Form 8941 instructions that will be useful in completing the form.
Number of Individuals who are considered Employees (Line 1) - Enter the number of employees who are considered qualifying employees for purposes of the credit. See page 5 of Form 8941 Instructions to determine whether an employee is considered an eligible employee or must be excluded.
Number of Full-Time Equivalent Employees (Line 2) - Enter the number of full-time equivalent employees (FTEs) the employer had for the tax year.
Average Annual Wages Paid (Line 3) - Enter the average annual wages the employer paid for the tax year, rounded down to the nearest multiple of $1,000.
Actual Health Insurance Premiums Paid (Line 4)- Enter the total employer premiums paid for the tax year.
Potential Health Insurance Premiums Paid (Line 5) - Enter the total premiums that would have been entered on line 4 if the total premium for each employee equaled the average premium for the small group market in which the employer offered health insurance coverage. (See page 7 of Form 8941 Instructions).
Tax-exempt Small Employer - Answer YES if the employer is a tax-exempt organization as described in IRC § 501(a) and is an eligible small employer as described above.
State Premium Subsidies Paid (Line 10) - Enter the total amount of any state premium subsidies paid and any state tax credits available to the employer for premiums included on line 4. (See page 4 of Form 8941 Instructions for additional information).
Number of Employees under Qualifying Arrangement (Line 13) - Enter the number of employees included on line 1 for whom the employer paid premiums during the tax year for health insurance coverage under a qualifying arrangement.
Number of FTEs when only counting arrangements (Line 14) - See Worksheet 7 in the Form 8941 instructions.
Credit from Pass-Through Entities (Line 15) - Enter the amount of any credit for small employer health insurance premiums from partnerships, S corporations, cooperatives, estates, and trusts.
Type of Credit Activity - Indicate whether the business activity is considered passive or nonpassive. A passive activity is generally a trade or business in which the taxpayer did not materially participate. Rental activities are generally considered passive, irrespective of participation.