Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the small business health care tax credit is one of the first health care reform provisions to go into effect. The credit 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 of the cost of single coverage for their employees in 2010. Here are the highlights of the new tax credit:
- For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible tax exempt organizations. On January 1, 2014 the rate increases to 50% (35% for tax-exempt employers).
- The maximum credit goes to smaller employers with 10 or less full-time equivalent (FTE)* employees paying an average of $25,000 or less.
- The credit is phased out once an employer reaches 25 FTEs or more – or that pay an average wage for their employees which exceeds $50,000 or more per year.
* Since the eligibility rules are based on full-time equivalency, (40 hours per week per employee), it is possible that an employer that utilizes part-time employees may qualify for full credit even if they employ more than 10 employees.
To find out if your business is eligible, simply follow the three simple steps fact sheet provided by the IRS. You can also run through several scenarios to see how the credit applies to employers in different circumstances.
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.
The IRS is beginning a postcard mailing to more than 4 million small businesses and tax exempt organizations to help raise awareness of this benefit. Please follow the links below for more helpful updates from the IRS:
More information about the credit from the IRS
News release IR-2010-38 – description of the credit and how to claim it
Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.
Tags: Business Health Care Credit, Health Credit, Heath Care Tax Credit, Small Business Tax Credit
