Small Business Health Care Tax Credit Questions and Answers: How to Claim the Credit
Q44. How does an employer claim the credit?
A44. An employer (other than a tax-exempt employer) claims the credit on the employer’s annual income tax return, with an attached Form 8941, Credit for Small Employer Health Insurance Premiums, showing the calculation of the credit.
Q45. How does a tax-exempt employer claim the credit?
A45. An employer that is described in section 501(c) and exempt from tax under section 501(a) claims the credit by filing the Form 990-T, Exempt Organization Business Income Tax Return, with an attached Form 8941 showing the calculation of the claimed credit. Filing Form 990-T with an attached Form 8941 is required for a tax-exempt eligible small employer to claim the credit, even if it is not otherwise required to file Form 990-T. See the question, “Can a tax-exempt organization be eligible?” on the Who Gets the Tax Credit page.
Q46. May an employer use the credit to offset its alternative minimum tax (AMT) liability?
A46. Yes. The credit can be used, subject to certain limitations based on the amount of an employer’s regular tax liability, AMT liability and other allowable credits. See section 38(c)(1) of the Internal Revenue Code (Code), as modified by section 38(c)(4)(B)(vi).
Q47. Can an employer (other than a tax-exempt employer) claim the credit if it has no taxable income and no AMT liability for the year?
A47. Generally, no. The credit offsets only an employer’s actual income tax liability or AMT liability for the year, subject to certain limitations. However, under the general business credit rules, as amended by section 2012 of the Small Business Jobs Act of 2010, the taxable year 2010 unused credit may be carried back five years or forward up to 20 years. For other years, normal carryback and carry forward rules apply.
Q48. Can a tax-exempt employer claim the credit if it has no taxable income for the year?
A48. Yes. For a tax-exempt employer, the credit is refundable, so even if the employer has no taxable income, the employer may receive a refund (so long as it does not exceed the employer’s income tax withholding and Medicare tax liability, as discussed in the “What is the maximum credit for a tax-exempt qualified employer?" question on the Calculating the Credit page.
Q49. Can the credit be reflected in determining estimated tax payments for a year?
Q50. Does taking the credit affect an employer’s deduction for health insurance premiums?
A50. Yes. In determining the employer’s allowable deduction for health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit. Thus, the employer may claim both a credit and a partial deduction for the same premium payments.
Q51. May an employer reduce employment tax payments — withheld income tax, Social Security tax and Medicare tax — during the year in anticipation of the credit?
A51. No. The credit applies against income tax, not employment taxes.