Business Management: A Small Business Advantage in Obamacare

An often-overlooked tax benefit in the Affordable Care Act can help SMBs offer health insurance


Marketplaces, Exchanges and SHOP

One of the key features of the ACA is the creation of Health Insurance Exchanges — or Marketplaces — for the sale of health insurance. For employers with less than 50 employees, private exchanges will compete with the public Small Business Health Option Program (SHOP) exchanges each state is required to have.

Small employers that want to make health insurance coverage available to their employees can choose to offer those employees coverage from the SHOP. Should a small employer decide to offer this type of coverage, it has the ability to select which plans to make available — it is not required to offer all coverages sold through the SHOP to its employees. However, if a small employer determines that SHOP plans will be made available to its employees, then all full-time employees must be offered this coverage.

Open enrollment for SHOP coverage was scheduled to begin on Oct. 1, and coverage will become effective Jan. 1, 2014. Commencing in 2016, the SHOP will be open for employers with up to 100 full-time equivalent employees.


Changes are Coming

Every systems integrator and security dealer will see a number of important changes to the tax credit for tax years beginning in 2014 and forward. As mentioned, the credit amount increases to 50 percent of premiums paid by eligible small employers. Cost-of-living adjustments are made to the average annual wage phaseout amounts (the credit is phased out gradually when average annual wages exceed certain amounts).

Another difference involves the two-year limit on taking the credit. Before 2014, there was no time limit on taking the credit, so employers that qualified could have taken it in 2010, 2011, 2012, and 2013. Beginning in 2014, there is a two-year limit, which begins with the first year the employer files Form 8941, Credit for Small Employer Health Insurance Premiums. However, employers that took the credit before 2014 can take the credit for two more years in 2014 and later.


Paperwork Required

Not surprisingly, employers providing health care benefits also face administrative reporting requirements under the ACA. In general, the business must use the IRS’s Form 8941 to calculate the credit. Most small businesses will include the amount as part of the general business credit on their annual income tax return. Plus, as a small business employer, the security business may be able to carry the credit back or forward. Many small business owners who currently buy their own individual healthcare coverage in the private market may be eligible to take advantage of new cost savings as well.

For a physical or electronic security business eligible for the tax credit for the 2013 tax year, but that forgot to claim it on the annual tax return, there’s still time to file an amended return.

Naturally, in order to fully understand all of the pros and cons of the Small Employer Health Insurance Tax Credit, professional assistance is strongly recommended.



Mark E. Battersby is a freelance writer that specializes in tax-related issues. Email him at