Small Business Tax Credit Requirements Adjusted for Inflation
Inflation Adjustments Affect Employer Eligibility & Maximum Credit Amount
The Internal Revenue Service (IRS) has announced inflation adjustments for 2017 that affect the amount used for determining who is an eligible small employer for purposes of the small business health care tax credit and the maximum amount of the credit. Among other eligibility requirements, the average annual wages of a small employer’s employees must not exceed $52,400 for taxable years beginning in 2017.
General Eligibility Requirements
For taxable years beginning in 2017, a small employer may generally qualify for the credit if:
- It has fewer than 25 full-time equivalent employees;
- It pays premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace;
- The average annual wages of its employees for the year does not exceed $52,400 (up from $51,800 in 2016); and
- It pays at least 50% of the premium cost for single health care coverage for each employee.
The credit, which is worth up to 50% of an employer’s contribution toward its employees’ premium costs, is available to eligible employers for two consecutive taxable years starting in 2014.
Calculating the Credit
For tax year 2017, the maximum amount of the small business health care tax credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $26,200 (up from $25,900 in 2016).
