Tax Credits for Small Businesses under the Affordable Care Act

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1 for Small Businesses under the Affordable Care Act 1

2 Profile Small Business Tax Credits at Work! Matt Grove Utica, New York Runs a bagel bakery The ACA s 35% tax credit allows Matt to increase his contribution for his employees health coverage from 50% to 65% 2

3 What are we talking about? Deductions vs. Credits Deductions lower taxable income. Tax credits directly reduce tax due ( dollar-for-dollar ). $2,000 Credit vs. $2,000 Deduction: Tax Impact: Deduc/on Credit Base taxable Income $10,000 $10,000 Deduc6on $2,000 N/A Taxable Income $8,000 $10,000 30% Rate $2,400 $3,000 Credit N/A $2,000 Tax to be Paid $2,400 $1,000 Savings $600 $2,000 3

4 Which employers are eligible? Fewer than 25 full-time (equivalent) employees (FTE) Two half-time employees count like one full-time employee Average annual wages less than $50,000 Not counting wages of the owner or her family Employer pays at least 50% of premium cost Non-profits also eligible (Available NOW!) 4

5 Lots of businesses eligible 81% of small businesses in New York State eligible (285,000 firms) Many eligible employers do not know about the credits, which has led to a slow start. Source: Small Business Majority Survey ACA Tax Credits have already benefited 360,000 small businesses in the U.S. covering 2 million workers. 5

6 How much is the credit worth? Level of credit depends on number of FTEs and their average wages Highest credit is 35% of a firm s health insurance costs For firms with less than 10 FTEs with average wages less than $25,000 Example: Tina s Bowling Alley has 7 FTEs with average wages of $24,000. She made $100,000 in profit, and without the credit her federal income tax would be $30,000. She spent $40,000 on health insurance for her employees. The tax credit would save Tina $14,000 (35% of $40k). With the credit, Tina would owe $16,000 in taxes. 6

7 What is a full time (equivalent) employee (FTE)? Employer and family members not included in FTE calculations Hours for all employees are added up and divided by 2,080 for the employer s tax year (can t count more than 40 hours per week).* Round down to the next lowest whole number, i.e = 10 FTE Example: Tina pays payroll for 4 people, including herself, but has 2 FTEs. Employee Hours Counted FTE Tina 3, John 2,080 2,080 1 Jim 1,040 1,040.5 Jason 2,500 2,080 1 TOTAL 5,200 2 * 2080 = 40 hours x 52 weeks. 7

8 What are the average annual wage calculations? Add up the total wages paid by the employer during the tax year Wages of owners and family are not included in this calculation Divide by the number of full time equivalent employees for the year and round down the result to the nearest $1,000, i.e. $25,999 = $25,000 Wages FTE = Average Annual Wage 8

9 What premiums count? The employer must generally pay at least 50 percent of the premium for each enrolled employee If an employer pays only a portion of the premiums and employees pay the rest, the amount counted to calculate the credit is only for the portion paid by the employer Employer must make a contribution on behalf of each employee who is enrolled in health care coverage 9

10 Sliding Scale: For Profit Entities AVERAGE ANNUAL WAGES FIRM SIZE Up to $25,000 $30,000 $35,000 $40,000 $45,000 $50, or less 35% 28% 21% 14% 7% 0% 11 33% 26% 19% 12% 5% 0% 12 30% 23% 16% 9% 2% 0% 13 28% 21% 14% 7% 0% 0% 14 26% 19% 12% 5% 0% 0% 15 23% 16% 9% 2% 0% 0% 16 21% 14% 7% 0% 0% 0% 17 19% 12% 5% 0% 0% 0% 18 16% 9% 2% 0% 0% 0% 19 14% 7% 0% 0% 0% 0% 20 12% 5% 0% 0% 0% 0% 21 9% 2% 0% 0% 0% 0% 22 7% 0% 0% 0% 0% 0% 23 5% 0% 0% 0% 0% 0% 24 2% 0% 0% 0% 0% 0% 25 0% 0% 0% 0% 0% 0% 10

11 Non-Profit Employers Eligible non-profits receive tax credits applied against payroll taxes. The credit is refundable for a tax-exempt employer. 11

12 Sliding Scale: Non-Profit Employers AVERAGE ANNUAL WAGES FIRM SIZE Up to $25,000 $30,000 $35,000 $40,000 $45,000 $50, or less 25% 20% 15% 10% 5% 0% 11 23% 18% 13% 8% 3% 0% 12 22% 17% 12% 7% 2% 0% 13 20% 15% 10% 5% 0% 0% 14 18% 13% 8% 3% 0% 0% 15 17% 12% 7% 2% 0% 0% 16 15% 10% 5% 0% 0% 0% 17 13% 8% 3% 0% 0% 0% 18 12% 7% 2% 0% 0% 0% 19 10% 5% 0% 0% 0% 0% 20 8% 3% 0% 0% 0% 0% 21 7% 2% 0% 0% 0% 0% 22 5% 0% 0% 0% 0% 0% 23 3% 0% 0% 0% 0% 0% 24 2% 0% 0% 0% 0% 0% 25 0% 0% 0% 0% 0% 0% 12

13 How to claim the credit Claim credit using IRS Form 8941 available at Credit can be reflected in determining estimated tax advances Credit applies towards income tax, not employment taxes Credit can be carried forward and backward Talk to your accountant! 13

14 Help For All New Yorkers Assistance for Small Businesses and Consumers 14

15 More Resources IRS: NY State Health Benefit Exchange: Health Care For All New York: Community Health Advocates: Hotline: (888) HHS Information: Congressional Budget Office: Kaiser Family Foundation: Community Catalyst: ACA: 15

16 The End/Questions 16