IRS Offers Details on New Small Business Health Care Tax Credit

Back in April 2010, the IRS stated they sent post cards to millions of small businesses to alert them to the new Health Care Tax Credit. Even if you didn’t receive a post card, your small business may still be eligible. Also, if a small business is receiving state health care tax credits they may also qualify for full federal tax credit.

Paying for your employers to have health insurance, when you are a small business, can be a financial strain. The Health Care Tax Credit, part of the Affordable Care Act was designed to encourage small employers to offer health care insurance for the first time or to maintain coverage they already have. This new tax credit aims to ease the financial burden for small businesses while helping to get their employees properly insured or help them stay insured.

To provide new guidelines to help small businesses determine whether they are eligible for the new health care tax credit, the IRS issued a new form, Notice 2010-44. There is also a 3 step form that might be easier to use, to determine your small business’ eligibility. You can find that form here.

The credit is available to small businesses that pay at least half the cost of single coverage for their employees in 2010. For tax years 2010-2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax exempt organizations.

If you are a small business employing 10 or fewer full-time employees you will get the maximum credit. Keep the following information in mind:

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.

If you are still unsure as to whether your business qualifies for any of these tax credits please contact a tax professional who can determine your eligibility for you. Don’t miss out on this important credit!