41.14 Small Business Health Tax Credit

If you pay at least half of the premiums for your staff and you meet eligibility requirements, you can claim a tax credit of 35 percent of your payments on Form 8941. The credit is highly complex.

Eligibility.

You must meet these three tests:

1. You have fewer than 25 full-time equivalent employees (FTEs) for the tax year. Add up the hours per year (but not more than 2,080 hours per employee) that employees (other than owners, relatives, and seasonal workers) work and divide by 2,080 to find the number of full-time equivalents.
2. The average annual wages of its employees for the year is less than $50,000 per FTE.
3. You must pay the premiums under a “qualifying arrangement.”
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image Caution
No Credit for Self-Employed Premiums
You cannot take a tax credit on Form 8941 for premiums you pay to cover yourself, your spouse, or your dependents.
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Credit amount.

A full credit applies if you have no more than 10 FTEs with average wages of $25,000 per FTE. The credit phases out for those with 10 to 25 FTEs and with wages of $25,000 to $50,000.

The credit is based on the lesser of actual payments or the average premium for the small group market in the states where your employees work (2012 average premiums will be listed in the Form 8941 instructions and in the e-Supplement at jklasser.com).

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