If you own a business, it’s important to understand how size affects your operations. According to government agencies, different types of small businesses have their own procedures to follow. What is considered a small business by the government?
What constitutes a small business?
The answer to this question is not as simple as it sounds. When it comes to small business size standard, government agencies vary. Each agency’s small business definition determines your responsibilities and eligibility for small business benefits.
A small business can operate under any business structure. No matter if you own a sole proprietorship, partnership, LLC, or corporation, you can be considered a small business.
The Small Business Administration (SBA), Affordable Care Act (ACA), and IRS each define what qualifies as a small business. Take a look at the following requirements to see if you qualify as a small business.
SBA size standards for small business
The SBA sets small business size standards. If you qualify as a small business, you are eligible for perks. According to the SBA, small businesses make up 99.7% of all U.S. companies with employees.
There is no single metric for SBA size standards. To determine if you are a small business, look at your industry, annual sales, and number of employees.
For many companies, the standard small business size classification by employees is 500 employees or less. But, your industry could make a difference in your size qualifications.
Typically, you must have between or below $750,000 and $35.5 million in sales and between or below 100 and 1,500 employees. Use your U.S. Census Bureau industry code on the SBA website to see if you are a small business.
You also need to meet the following requirements:
- Headquartered in the U.S.
- Operate primarily in the U.S.
- For-profit venture
- Independently owned and operated (not owned by a parent corporation)
- A minority player in your industry (you don’t hold a major market share)
If you match the SBA’s small business guidelines, you might be eligible for government aid. The SBA offers financial assistance and loan programs to small businesses who meet the SBA loan requirements. Small business owners have a better chance of securing a loan with an SBA guarantee. The SBA guarantees part of the loan amount, which reduces the lender’s risk.
The Small Business Administration also provides small business counseling. And, the SBA ensures that at least 23% of government contract work is sourced to small businesses.
Healthcare.gov (Affordable Care Act)
Unlike the SBA, Healthcare.gov sets a standard size to define what is classified as a small business. If you have 50 employees or less, you are considered a small company, according to the ACA.
The employees can be full-time workers or full-time equivalent. The ACA defines a full-time equivalent employee as someone who works an average of 30 hours per week.
If you have part-time workers, you need to calculate full-time equivalent employees. Add the number of hours worked by part-time employees. Divide the total by the number of part-time employees you have. Then, add that figure to the total number of full-time employees. If the number is 50 or less, you are a small business.
Why is small business size according to the ACA important? If you have 50 or fewer employees, you do not need to provide employee health coverage. However, you can provide insurance if you want to. If you have 25 or fewer employees and offer a plan through the SHOP Marketplace, you could be eligible for a tax credit.
IRS small business standards
The IRS does not have a small business standard size. The size of your business depends on individual tax laws. Use the IRS information to understand your company tax obligations.
The IRS provides an online resource for business owners who file Form 1040, Schedules C, E, F or Form 2106. The resource also applies to businesses with assets under $10 million.
Look at the IRS’s Small Business and Self-Employment Tax Center to understand your small business responsibilities. You will find information about Business ID numbers, structures, and stages.
For an at-a-glance overview, check out our small business size standard table.