Are you a small-business owner with fewer than 25 full-time employees? You could be eligible for a small business tax credit! This federal subsidy is targeted to businesses with low to moderate-income employees, and it offsets the cost of paying for employees’ health insurance premiums.
To qualify for the small business tax credit, your firm must meet the following requirements:
- You must have fewer than 25 FTE employees.
Your employees must make an average yearly salary of less than $50,000. (This salary cap excludes owners.)
- You must plan to pay 50% or more of your employees’ health insurance premiums.
- Your employees must purchase an individual health plan through Covered California’s Small Business Health Options Program (SHOP).
This bulleted list throws out some confusing parameters, so we’ll explain them further.
Eligible employees must be full-time equivalent
A full-time equivalent (FTE) employee is a calculation of full- and part-time employees that worked during the preceding calendar year. Here’s what the state exchange considers full- and part-time employment:
- A full-time employee works at least 30 hours a week for more than 120 days a year.
- A part-time employee works 20 to 29 hours a week for more than 120 days a year.
To calculate your total number of FTE employees, add up the number of full-time employees you have. Then add up the total monthly hours worked by your part-time employees, and divide that total by 120. This resulting number, plus the number of full-time employees you have, indicates your FTE count.
You can only qualify if you have fewer than 25 FTE employees
The SHOP Marketplace offers group coverage for small businesses with 1 to 100 employees. To be eligible for a tax credit through Covered California, your firm must have fewer than 25 FTE employees. Plus, those employees must make an average salary of less than $50,000 each year. (This salary cap excludes owners.)
If your firm has 25 or more employees, you won’t qualify for a tax credit. And if you have 50 or more FTE employees, you must also meet certain requirements mandated by the Shared Responsibility Provision.
The smaller your business, the bigger your tax credit
Your tax credit will vary based on the number of employees you have. The largest tax credit you can get is 50% of the premium expenses that you pay toward each employee’s health insurance plan. For tax-exempt employers, the maximum available subsidy is 35% of employee premium payments.
Employers with 10 to 24 FTE employees won’t qualify for the maximum subsidy amount. However, employers with fewer than 10 FTE employees (with annual wages that average less than $25,000) might qualify for the 50% tax credit.
Say you have 10 employees who make under $25,000 a year, and you pay 50% of employees’ premiums. Your total premium expenses will be $70,000. Assuming you meet the other requirements we listed above, you’ll receive a $35,000 tax credit — 50% of what you contribute to employee premiums.
You must offer coverage through SHOP
Keep in mind, you are not required to buy group coverage if you have fewer than 25 FTE employees. Your employees can instead shop for individual coverage on their own.
However, to be eligible for the small business tax credit, you have to meet two requirements:
- Your employee must choose an individual plan that is offered through Covered California’s SHOP Marketplace.
- You must pay at least half of premium costs for each employee’s plan.
Are You Eligible For A Federal Subsidy?
If you have fewer than 25 FTE employees, find out if you qualify for a tax credit! Talk to a licensed, independent agent at Regency West Insurance Services.
Call us at (858) 699-0286 or visit our website (RegencyWestInsurance.com) to schedule a free consultation. Our team of agents works one-on-one with you to help you set up SHOP and confirm if you’re eligible for the small business tax credit.