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Small Business Health Care Tax Credit for Small Employers

   “The small business health care tax credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees.”

Received a Postcard from the IRS?

  Beginning in APril 2010, millions of small employers received postcards from the Internal Revenue service that alerted them to the new small business health care tax credit and encourages them to check their eligibility.  Even if you haven’t received a postcard, your business may still be eligible to claim the small business health care tax credit.

Eligibility Rules:

  • Providing health care coverage: A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm Size:  A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage:  A qualifying employer must pay average wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify

Amount of Credit:

  • Maximum Amount: the credit is worth up to 35 percent of a small businesses premium costs in 2010 (25 percent for tax-exempt employers). On January 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
  • Phase-out: the credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Three Simple Steps for Employers to Qualify:

To determine if your small business or tax exempt organization qualifies for the small business health care tax credit, follow the three simple steps the Internal Revenue Services fact sheet.

Examples:

 Scenarios illustrate how the credit applies to employers in different circumstances.

Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010

Main Street Mechanic

  • Employees: 10
  • Wages: $250,000 total; or $25,000 per worker
  • Employee Health Care Cost: $70,000

2010 Tax Credit: $24, 500 (35% Credit)

2014 Tax Credit: $35,000 (50% Credit)

Example 2: Restaurant with 40 Part-time Employees Gets $28,000 Credit for 2010

Downtown Diner:

  • Employees: 40 Part-time Employees (The equivalent of 20 Full-time Workers)
  • Wages: $500,000 total; or $25,000 per full-time equivalent worker
  • Employee Health Care Costs: $240,000

2010 Tax Credit $28,000 (35% credit with phase-out)

2014 Tax Credit: $40,000 (50% credit with phase-out)

Claiming the Credit:

Small employers, whether businesses or tax-exempt organization, will use the New Form 8941,  Credit for Small Employers Health Insurance Premiums, to calculate the small business health care tax credit.

Small businesses, need to include the amount of the credit as part of the general business credit on their income tax returns.

Tax-exempt organizations will include the amount of the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T has been revised for the 2011 filing season to enable eligible tax-exempt organization-even those that owe no tax on unrelated business income to claim the small business health care tax credit.

For more information, please see news released IR-2011-90 and IR -2010-117.

Need more detailed information? Please visit the Internal Revenue Website for answers and check for updates.

Webinar on Small Business Health Care Tax Credit:

Watch the webinar to learn about the amount of the credit available, who qualifies, what the eligibility rules are, how to figure the credit, how to claim the credit if you qualify and what additional resources are available.

For More Information:

The Internal Revenue Service has issued New Guidance that makes it easier for small businesses to determine whether they’re eligible for the new health care tax credit under the Affordable Care Act and how large a credit they’ll receive.

For more information, please visit the Internal Revenue Services Website at www.irs.gov

This blog was adapted from the Internal Revenue Service artice id: 223666

 

 

 

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