2014 is a big year for changes in the health insurance world. The Affordable Care Act was set up to implement slowly over time and 2014 will see a lot of small business healthcare changes. Some of those changes will affect the Small Business Health Care Tax Credit. Currently, the credit is available for companies with fewer than 25 full-time or full-time equivalent employees and average wages less than $50,000. The credit has been up to 35% of the company’s health insurance costs.
There are a couple important changes to this credit for 2014. The first change is that the credit is increasing to 50% of the company’s insurance costs. The second big change this year is that companies will only be eligible for the credit if they purchase their insurance through the SHOP exchanges.
Unfortunately, the SHOP exchanges have not been immune to the troubled ACA rollout. Online enrollment in SHOP plans won’t be available until after November 1. Companies desiring to enroll in SHOP plans will need to do so through an insurance agent or broker for now, unless their state has set up its own exchange.
There are some other things to be aware of when calculating a company’s eligibility for the credit. Shareholders and their family members are not counted when determining total number of employees or average wages. There is also a difference in how full-time equivalents are measured. Rather than basing it on a 40 hour work week, the Affordable Care Act considers full-time to be 30 hours per week. As a result, if a company has a part-time employee who works 20 hours a week and an intern who works 10 hours a week, the two combined equal one full-time equivalent employee. This will push many companies over the 50 employee limit.
As always, if you’re a small business owner, don’t go it alone. These and other healthcare changes as a result of the ACA are extremely complicated and potential penalties can be staggering for even the most miniscule mistakes. Be sure to regularly contact your tax professional for guidance.