ASK THE EDD LAWYER- PLEASE EXPLAIN THE SMALL BUSINESS HEALTH CARE TAX CREDIT (SBHCT)
By Robert S. Schriebman
Before we get into a discussion of the Small Business Health Care Tax Credit (SBHCT), let us take a moment to discuss the difference between a deduction and a credit. A deduction allows you to subtract certain expenses to arrive at your taxable income. It is essentially an offset. Once the taxable income is determined you will compute your tax liability based upon the net effect of these deductions. You will pay your tax based upon the net computation. A credit, on the other hand, is a dollar for dollar discount from the tax liability itself. Think of it as a credit that lowers your credit card liability. Therefore, the SBHCTC is a dollar for dollar discount on your income tax bill. If I had a choice between a deduction and a credit for my taxes I would take the credit every time.
The purpose of this small business tax credit is to help pay the costs of health care coverage offered to employees. What is a small business for purposes of the credit? A small business is defined as having less than 25 employees. These employees can be full-time employees or a combination of full-time and part-time employees. Two half-time employees equal one full-time employee.
For 2013, the average annual wage of all employees must be less than $50,000 per worker, and the employer must pay at least fifty percent (50%) of the insurance premium for the health insurance provided.
How much is the credit? The maximum credit is thirty-five percent (35%) of the premiums paid for the small business and twenty-five percent (25%) of premiums paid for small tax-exempt employers such as charities.
What if your small business did not owe any taxes for 2013? You are allowed a carry-back credit or a carry-forward credit for 2014 and later years.
Tax exempt organizations that pay no taxes are entitled to a refund of the insurance premium from the Treasury. Tax exempt organization is eligible to receive the credit as a refund so long as the credit does not exceed the organizations income tax withholdings and Medicare tax liability.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.