Even though the Trump Administration seeks to repeal and replace the ACA, it will take time for the political process to occur. Thus, there is still an opportunity for your small business to benefit from the tax deductions or credits for the 2016 tax return year.
What’s the difference between a Deduction and a Credit?
Before we go into how the ACA affects your small business, let me be clear on the difference between a tax credit and a tax deduction. A tax credit directly reduces your tax liability. For example, if you owed $1,000 in taxes to the IRS and received a $500 tax credit, you would only have to pay $500. Tax credits are dollar-for-dollar reductions in your tax liability.
A tax deduction is different because it indirectly reduces your tax liability by reducing (through increasing) the expenses used to arrive at income. I've always told clients that having or receiving a tax credit is always better and more lucrative than having a tax deduction. Please speak to your tax advisor for what works specifically for you.
Do you qualify for ACA tax credit?
As a small business owner, you may be eligible for the small business healthcare tax credit if you meet the following conditions:
- You cover at least 50% or more of your employees' insurance premium costs;
- You must have fewer than 25 full-time employees;
- Your full-time employees' annual wages are less than $52,000 each in the 2016 tax year. Your credit may be limited or phased out if wages are higher;
- You must purchase health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace.
Finally, here's a shared responsibility payment notice: If you have fewer than 50 full-time employees including full time and equivalent employees, i.e., you have two part-time employees who split a full- time job, you're not subject to the employer's shared responsibility provisions. If you employ fewer people, you have other incentives as well.
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How much of a difference does the tax credit make for your business?
For tax years beginning in 2014 or later, the maximum credit increased to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers. Additionally, the credit is available to eligible employers for two consecutive taxable years.
For example, if you pay $50,000 a year toward employees’ health care premiums — and if you qualify for a 50% credit, you save $25,000 per year. Imagine what you can do for your business with that money!
Tax credits are advantageous because they help you save money on taxes which you can use to hire more employees or purchase more equipment.
Regardless of where you sit politically, if you are a small business owner, there's a great opportunity for you to save money on your taxes by way of the small business healthcare tax credit.
Speak with your tax advisor about your eligibility for the tax credit and how much may be available to you before the ACA is repealed and/or replaced.
About Ebong Eka
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
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