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Affordable Care Act Tax Credit for Small Businesses: Do You Qualify?

Levar Haffoney/ TNJ | 1/19/2017, midnight

Small businesses are the backbone of the U.S. economy, and according to the SBA, small businesses make up 99.7% of U.S. employer firms and 49.2% of private sector employment. Historically, these employers have faced challenges when it comes to providing affordable health care for their employees. It is estimated that smaller firms pay 18% more, on average, than larger employers.

If you own a small business, with less than 25 full-time equivalent employees, you may be eligible for the Affordable Care Act Tax Credit. A full time equivalent employee is categorized as someone who works 2,080 hours per year, and several part-time employees can be categorized as one full-time equivalent employee.

Small employers can sign up through the Small Business Health Options Program (SHOP), an online marketplace that offers health and dental insurance plans to firms with less than 50 full time equivalent employees. In order to qualify for the tax credit, each of the following conditions must be met:

25 or less full-time equivalent employees

Average employee salary must be $50,000 or less

The employer pays at least 50% of the premium costs for full time employees

The coverage must be purchased through the SHOP exchange

The credit is worth up to 50% of the premiums that you pay for your employees. For example, if you have paid $10,000 in premiums for your employees, you will qualify for up to $5,000 credit. If your business employs less than 10 full time equivalent workers, who earn $25,000 or less, you may receive a higher tax credit.

The Affordable Care Act has not been without challenges. Many smaller employers with more than 50 employees have seen their premiums increase. Nationally, there have been insurers that have withdrawn from state exchanges because their risks have increased. While these challenges persist, many small businesses, micro-enterprises, and freelancers have benefited from the tax credit available through the SHOP marketplace.

(Levar Haffoney is a principal at Fayohne Advisors, LLC.)