Health care tax credit for small businesses

Maryland small business owners might be unaware of a federal tax credit for some businesses that provide health insurance for their workers. It is available for businesses making less than $50,000 annually with less than 25 full-time employees.

The credit was established by the Affordable Care Act. Despite the fact that the Government Accountability Office estimates up to 4 million small businesses were eligible for the credit in 2014, fewer than 200,000 companies claimed it.

The GAO cites several reasons for such low participation. Many business owners are simply not aware of the credit. Others may find claiming it is too complex. The credit is available for two consecutive years and is available for up to 50 percent of the employer’s health care contribution costs. The GAO states that some owners may not feel the credit gives them enough of an incentive to provide health insurance to their workers while others may think that only being able to claim it for two years is not a good enough reason. Businesses that do take the credit are able to carry it forward to other years if they do not owe taxes or retroactively apply it to previous years.

Tax planning is an integral part of operating a business, and it starts with the choice of legal entity. There are a variety of different tax credits and tax deductions that attorneys will point out. This can help reduce the tax burden and allow owners to use their money for other business needs.

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