There has been a lot of interest on who qualifies and how much of a credit the Small Business Health Tax Credit will provide. Our own Daniel Nitschke, CPA took the challenge to figure out this elusive credit and how it can be utilized by our clients.
- Authorized by The Patient Protection and Affordable Care Act – passed in December, 2009. – The IRS sent out postcards about this credit to small businesses nationwide on April 19, 2010.
ELIGIBILITY:
Qualified Employers must meet all of the following requirements: 1. Have fewer than 25 full-time employees for the tax year. 2. The average annual wages of its full-time employees for the year must be less than $50,000. 3. Must pay health care premiums under a “qualifying arrangement” (A. Health care coverage must be offered by the employer. B. Employer must contribute a uniform percentage of at least 50% of total employee health care premium costs for the year.)
AMOUNT OF CREDIT:
Maximum Credit: The following credit is available to employers with 10 or fewer full-time employees with average annual wages of less than $25,000 (both must apply).
- For tax years 2010 through 2013 = 35% of employers premium expenses (25% for tax-exempt employers)
Reduced Credit: The following reduced credit applies to employers with 11 to 24 full-time employees and/or average annual wages of less than $50,000.
- The reduction of the credit is determined by multiplying the maximum credit by the following fractions: 1. # of FTEs in excess of 10 divided by 15 2. Amount by which average annual wages exceeds $25,000 divided by $25,000
- For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the reduction is the sum of the amount of the two reductions.
- This sum may reduce the credit to zero for some employers with fewer than 25FTEs and average annual wages of less than $50,000
DETERMING THE # OF FTEs:
Divide (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080. The result is rounded down to the nearest whole number.
DETERMING THE AMOUNT OF AVERAGE ANNUAL WAGES:
Divide (1) the total wages paid by the employer to employees during the year by (2) the number of the employer’s FTEs for the year. The result is rounded down to the nearest $1,000.
OTHER IMPORTANT INFORMATION PERTAINING TO THE CREDIT:
1. IMPORTANT: The business owner and family members are not considered employees for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.
2. Employers with 25 or more employees can qualify for the credit if some of the employees are part-time.
3. Seasonal employees (work less than 120 days) are disregarded in determining FTEs and average annual wages.
4. The credit is claimed on the employers annual business tax return (for tax-exempt employers, the IRS will provide further info. on how to claim the credit).
5. The credit is non-refundable and can be carried forward 20 years (for tax-exempt employers the credit is refundable).
6. The credit can be reflected in determining estimated tax payments.
7. The amount of health insurance premiums deducted on the tax return must be reduced by the amount of the credit (no double dipping).
Created 5/5/10 – DJN
Tags: accountant, accounting, Affordable Care Act, bookkeeper, bookkeepers, Brockport, Business, business owners, business survival, care act, CPA, credit, employee health care, FL, health care coverage, health care premiums, health tax, healthcare, irs, Kissimmee, maximum credit, NY, Orlando, Patient Protection, professional advice, quickbooks proadvisor, Rochester, Saxon, Secord, small businesses, tax, tax credit, Thaney, therapists, West Palm Beach
