Small Business Health Care Tax Credit

Eligible small businesses that purchase coverage through the state marketplace get a tax credit of up to 50% for for-profit businesses of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50% of the total premium cost. The credit will be available for two years. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses (i.e. non-profits) meeting these requirements are eligible for tax credits of up to 35% of the not-for-profit employer’s contribution toward the employees’ health insurance premium.​​​​​​​ 

Tax Benefits for Your Business

Generally speaking, any expenses an employer incurs related to health insurance (for employees or for dependents) are 100% tax-deductible as ordinary business expenses, on both California and federal income taxes. Beyond this general rule, taxes get a bit more complicated. It is possible to set things up so that your employees save tax money. With just a little paperwork on your part, an employee can contribute to the cost of health insurance on a pre-tax basis. That means you deduct the cost of the premium from the employee’s paycheck before state and federal taxes are calculated and deducted. This increases the employee’s take-home pay and lowers the amount of the employee’s taxable income.