With all of the talk about the ability for employers NOT to offer health insurance, when you look at the numbers you have to really determine the value. For the tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. Beginning Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.
Did you know that conservatively speaking, the average cost of re-hiring a replacement employee is 25% of that position’s salary and/or commissions? Among the factors and dynamics affecting employee retention (challenging work, positive environment, growth opportunities, etc.), the benefit of affordable health care ranks as one of the most influential. According to the Kaiser Deloitte Survey, when asked about the importance of employer offered health benefits, 99% of surveyed employees rated their sponsored insurance as exceptionally important to them and 63% admitted that their healthcare was the main reason they chose to remain with their employers. The hundreds of thousands of dollars lost due to poor employee retention nationwide can, in many ways, be correlated to the waning percentage of employees with access to affordable and thorough sponsored healthcare.
Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.
Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments. Small businesses can accrue the tax credits for dental and vision care, on top of standard health insurance, according to the guidance.
There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. If you can benefit from the credit this year but forgot to claim it on your tax return you can still file an amended return.
To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (example - 45 employees work a total of 900 hours per week = 22.5 FTEs working 40 hours per week).
Those employees then must have average wages of less than $50,000 a year. You pay total wages of $200,000 and have 22.5 FTEs, so divide $200,000 by 22.5 (the number of FTEs) and the result is your average wage. The average wage would be $8,888.85.
The smaller the business or charity, the bigger the credit is available. If you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less. You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. If you are a small business, include the amount as part of the general business credit on your income tax return. Also if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.
About Our Show Advisor: Dwayne Briscoe is the founder and owner of Bookkeeping-Results, LLC. Dwayne began his company in January 2007, based on the foundation to educate small business owners and bookkeepers who use QuickBooks®. Working as a full-charge bookkeeper and trainer in a variety of industries for over 15+ years, he is a certified Pro Advisor with 5 certifications, including Enterprise Solutions and Point of Sale. He is also an instructor at Brazosport College in Lake Jackson, where he teaches basic accounting, QuickBooks®, and basic payroll, along with hosting his own private classes.
Bookkeeping-Results, LLC has focused more on quality and not quantity for their clients, by paying attention to the details. Through regular continuing education participation, as well as exploring additional ways of “thinking outside of the box” to help expand people’s knowledge of their own financial well being, it’s important to focus on not only saving the client money but also making the client money.