How do I count employees for the small business tax credit?

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Small businesses may be eligible for a tax credit to offset the cost of providing health insurance to employees. To qualify, small businesses must:

  • Have 25 or fewer full-time equivalent employees.
  • Pay at least 50 percent of employees’ health insurance premiums.
  • Pay annual average wages that are below $50,000 per full-time employee.

To determine if you might qualify for the small employer tax credit, determine if you employed fewer than 25 full-time equivalent employees during the previous tax year. To do this, add up the total hours worked that year by all of your employees and divide by 2080 hours.  If the result is less than 25, you may be eligible for this credit. When you are adding up the hours your employees worked, do not include any hours worked by the owner, family members or seasonal employees. Also, if your employee works more than 40 hours a week, don’t include those additional hours.

To find out more information about the tax credit and to determine if you qualify, please visit the IRS’s Small Business Healthcare Tax Credit Center.