Health Care Tax Credit for Small Business

Small Business Health Care Tax Credit

 

Health coverage legislation enacted this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.                                                                                   

             

                

                             

 

 

                  

                                         

 

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 annual 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 business' premium costs in 2010. On Jan. 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.

Small Business Health Care Tax Credit Scenarios

Small Business Health Care Tax Credit Scenarios

Examples of Employers Receiving the Credit

 

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 Costs: $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 half-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)


Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010

First Street Family Services.org:

Employees: 9

Wages: $198,000 total, or $22,000 per worker

Employee Health Care Costs: $72,000

2010 Tax Credit: $18,000 (25% credit)

2014 Tax Credit: $25,200 (35% credit)


3 Simple Steps: If you are a small employer (business or tax-exempt) that provides healthy insurance coverage to your employees, determine

if you may qualify for the Small Business Health Care Tax Credit by following these three simple steps: HERE

PRI Tax & Bookkeeping 322 Division St, Elgin, IL 60120

 

Health Care Tax Credit for Small Business

IRS Offers Details on New Small Business Health Care Tax Credit

 

IR-2010-63, May 17, 2010

WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.

Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.

Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page.

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