Health Care Reform
Small Business Health Care Tax Credit
 
One of the first pieces of Health Care Reform affecting employers is the Small Business Health Care Tax Credit. The new health reform law gives a tax credit to certain small employers that provide health care coverage (medical, dental and vision) to their employees, effective with tax years beginning in 2010. 
 
The following details and resources are intended to act as a guide for determining whether or not employers are eligible and the steps for obtaining the tax credit.
ELIGIBILITY RULES
 
The IRS began mailing postcards to millions of small businesses the week of April 19, 2010 to alert them to the new Small Business Health Care Tax Credit and to encourage them to verify their eligibility. Even if you do not receive a postcard, you may still be eligible. Determine eligiblity using the IRS 3-Step worksheet.
 
Providing Health Care Coverage
A qualifying employer must cover at least 50% of the cost of health care coverage for some of its employees based on the single (employee only) rate. Click here for benchmark premiums.
 
Firm Size
A qualifying employer must have less than 25 full-time equivalent workers. Do not rely on the total number of employees to determine eligibility because even an employer with less than 50 part-time employees may be eligible (EXAMPLES of employers receiving the credit).
 
Average Annual Wage
A qualifying employer's annual average wages must be less than $50,000. A business owner's salary may be excluded when calculating average wages.
 
Tax Status  
Both firms for profit (taxable) and non-profit (tax-exempt) qualify. Non-profits, including churches and other religious congregations are eligible to claim a partial credit.
AMOUNT OF CREDIT
 
Meeting All Eligibility Rules (Taxable Qualified Employers)
2010-2013: The credit is worth up to 35% of a qualified employer's premium costs.
2014 going forward: The credit is worth up to 50% of a qualified employer's premium costs.
 
Meeting All Eligibility Rules (Non-Taxable Qualified Employers)
2010-2013: The credit is worth up to 25% of a qualified employer's premium costs.
2014 going forward: The credit is worth up to 35% of a qualified employer's premium costs.
 
Not Meeting All Eligibility Rules
The credit amount is gradually phased out 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 (details available within the IRS FAQs)
 
Obtaining the Credit
The credit will be claimed on the employer's annual income tax return. The IRS still needs to provide further information on how a tax-exempt employer will claim the credit.
RESOURCES
The IRS has provided multiple resources to assist small businesses or tax exempt organizations in determining their eligibility for the Small Business Health Care Tax Credit. 
Please contact me if you would like to discuss.
 
 
The details provided above are for informational purposes and are not intended to constitute legal advice. Please consult your legal and/or tax advisors in connection with any fact-specific situation under federal, state or local laws that may impose additional obligations.