Nefouse and Associates wants to remind small business owners about one of the first provisions of the recently passed health care reform legislation, the Patient Protection and Affordable Care Act, to go into effect – the small business health care tax credit. This tax credit encourages small business owners to offer health insurance coverage for the first time or maintain the coverage they already have. With the potential of assisting four million employers, it is specifically targeted to small businesses and tax-exempt organizations that primarily employ low and moderate income workers.
The tax credit is available to eligible small employers that pay at least half the premium cost of single coverage for their employees in 2010 and employ no more than 25 full-time equivalent employees that have average annual wages of less than $50,000. The amount of the credit varies based on the size of the employer and wages of its employees. The maximum credit will go to employers with 10 or fewer full-time equivalent employees and that have average annual wages of less than $25,000. Employers that have part-time workers may qualify even if they have more than 25 employees because the eligibility rules are based on the number of full-time hours worked in a year for 25 individuals, capped at 2,080 hours, not the number of employees. This tax credit can be considerable for a qualifying small business. In 2010, the maximum credit is 35 percent of employer-paid premiums (25 percent for tax-exempt organizations). In 2014, the maximum increases to 50 percent of employer-paid premiums (35 percent for tax-exempt organizations). The tax credits are not refundable (i.e., an employer must have income tax liability and a tax-exempt employer must have payroll tax liability).
A very simple example of how the tax credit would benefit a company with 10 full-time employees: •Employees: 10 •Total wages: $250,000 or $25,000 per worker •Employer’s Portion of Health Care Costs: $25,000 The maximum 2010 tax credit for an employer that is not tax-exempt would be $8,750 (35 percent credit). In 2014, the maximum tax credit would be $12,500 (50 percent credit). For information about the tax credit, visit www.irs.gov. You also can contact your Health Net broker or sales executives with any questions. In addition, this information is not intended to be tax advice, so you should consult with a tax professional before making any decisions.