Small Business Health Care Tax Credit for Small Employers
This information comes from the IRS’ website and I thought it would be useful to small business owners.
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?
Millions of small employers received postcards from the IRS beginning in April that alerted them to the new Small Business Health Care Tax Credit and encouraged them to check their eligibility. Even if you didn’t receive a postcard, your business still may be eligible. Read more about this effort.
Eligibility Rules
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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.
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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).
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Average annual wage. A qualifying employer must pay average annual wages below $50,000.
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Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
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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).
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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 on the IRS fact sheet.
Examples
Scenarios illustrate how the credit applies to employers in different circumstances.
Claiming the Credit
Both small businesses and tax-exempt organizations will use new Form 8941 to calculate the small business health care tax credit. A draft form is currently available for viewing.
Small businesses will include the amount of the credit as part of the general business credit on its income tax return.
Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.
The final version of Form 8941 and its instructions will be available later this year. For more information, read the IRS news release.
Questions and Answers
Need more detailed information? Click here for answers.
YouTube Primer on Health Care Credit
This new video explains the who, what, why and how of the Small Business Health Care Tax Credit.
For More Information
New guidance 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.
Related Items:
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IR-2010-96, IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit
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Flyer on the Small Business Health Care Tax Credit for small employers
