Eligible small employers may be entitled to a tax credit of ranging from 35% to 50% of their contribution toward employee health coverage. This credit is available for two consecutive tax years. An eligible small employer must have:
1. No more than 25 full-time equivalent employees during its tax year.
2. Employees who have average annual wages of no more than $51,800 for 2016.
3. A qualifying arrangement in effect that requires the employer to contribute at least 50% of the health insurance premiums.
Tax-exempt organizations may also qualify for the credit. The credit is refundable for tax-exempt employees but is limited to the amount of the tax-exempt employer’s payroll taxes withheld during the calendar year in which the taxable year begins. The credit for tax-exempt organizations can range from 25% to 35% of employer contributions.
This tax credit must be calculated annually on Form 8941, Credit For Small Employer Health Insurance Premiums, and must be attached to the business tax return.
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