Small Employer Health Insurance Tax Credit
If you have employees and offer health insurance and PAY for at least 50% of the employee only premium (no contribution for dependents is required), then you may be able to claim a health insurance tax credit!
– note the credit doesn’t apply to owner’s share of premiums, only employees. Also, this credit can ONLY be taken in 2 consecutive years. Per the IRS site: “An employer may claim the credit for no more than two-consecutive taxable years”. ALSO, if you are an “owner”… you should NOT include yourself as an employee for the purposes of using the calculator / getting a credit.
Now there is a requirement on the IRS website: Offer a qualified health plan to its employees through a Small Business Health Options Program Marketplace (or qualify for a limited exception to this requirement).
I find this language very misleading, namely the words “limited exception” as there’s nothing limited about it!
The issue for most employers is that when you go to find any plans on the healthcare.gov website, they don’t exist!
There is no such thing as the “SHOP” as nearly every health insurance company has refused to participate. Some did early on, but the IRS always provided “relief” for employers where no SHOP options were available.
I think the reason for this is that the government is a behemoth institution with legacy IT systems and insurance companies are behemoth institutions with legacy IT systems and they all have to somehow work together within the healthcare.gov SHOP website. I can tell ya, it was a mess and probably was so costly for insurance companies to even try to get their square pegs through government round holes…. that eventually all of them said forget this! Insurance companies also had no incentive to incur these costs / sheer labor bandwidth (I can attest that working with the government takes a LOT of labor bandwidth).
Insurance companies had no incentive because most markets only really have one (or two) legitimate health insurance company. This has become the norm even in large markets (i.e. Philadelphia) because the super high financial risks with health problems can only be handled by very large institutions. Since the ACA banned medical underwriting, it’s virtually impossible for an insurance company to effectively measure and handle the financial risks associated with health insurance. https://fellowpeo.com/affordable-care-act/ – Sure other insurance companies may exist in your area, but probably there’s only one or two insurers that have 80%+ market share.
This is reasonable. If I told you that you could win $10 million dollars by flipping a coin and calling it correctly, but if you lose, I get that money. Could you personally handle that financial risk? Probably not. That’s just plain gambling for gambling sake, and that is what health insurance without medical underwriting is…flipping a coin with incredibly high stakes. So here we are, with one very large insurer per regional market. For competition to occur, smaller companies (where a $10 million dollar health insurance claim would hurt them tremendously) need to be nimbler and smarter, which is virtually impossible because without medical underwriting they cannot obtain the information to do so. So if you are the only insurer in town… why bother with the pains of integrating with the government SHOP site as it is incredibly costly for you to do so! And… employers can still get the tax credit either way.
Anyway, back to you and the tax credit. So there is no SHOP, but this tax credit demands it! WTF IRS! There is a way to get the tax credit and it’s been a “transitional relief” for every year that this tax credit has existed. https://www.irs.gov/newsroom/irs-provides-certain-small-employers-with-relief-for-the-small-business-health-care-tax-credit-for-2017-and-later-years
It’s been extended indefinitely and I hope they’ll just remove that requirement form the legal language in the future… the SHOP was a very costly failed experiment. Yes the IRS website says “limited exception”… but go ahead and take a peak… virtually no zip codes have a “SHOP” anymore. So use form 8941 to claim the tax credit, you can amend a previous return as well. Also, it’s not exactly an “easy” credit to complete paperwork for so your accountant may not like this IMO:
Gathering the following information will assist you in completing Form 8941, Credit for Small employer Health Insurance Premiums.
SHOP QHP documentation or letter of eligibility from SHOP, unless transition relief applies (You’ll most likely be using transition relief)
Numbers of full-time and part-time employees and numbers of hours worked
Average annual wages for employees
Employer premiums paid per employee, if applicable
Relevant K-1s and other pass-through credit information
Cost of coverage for each employee
Payroll tax liability – for tax-exempt organizations only
Pass-through credit info – for K-1s of other small employers