You may qualify for a tax credit made available under the recently passed Patient Protection and Affordable Care Act for eligible small employers who provide health care coverage to their employees, effective with tax years beginning in 2010. Starting the week of April 19 the IRS will be sending out postcards alerting small businesses and encouraging them to check their eligibility. Even if your business doesn’t receive a postcard, your business still may be eligible.
See the step step by step procedure at the bottom of this page, which will also aid you in determining if your business qualifies for the credit, as well as additional information immediately below. Please let us know if you have any questions.
Group Health Care Eligibility Rules
Providing health care coverage- A qualifying employer must cover at least 50 percent of the cost of healthcare 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.
ARRA Subsidy Eligibility Period Extended Through May 31, 2010
Before the most recent extension, an employee had to be involuntarily terminated from employment between September 1, 2008 and March 31, 2010 to be eligible for the COBRA premium subsidy. This eligibility period has been extended so that individuals experiencing an involuntary termination of employment through May 31, 2010 are now eligible for the 65 percent subsidy of COBRA benefits. Although the extension was not passed until April 15, 2010, it is effective as if it were part of the original law. This means that individuals who were involuntarily terminated between April 1 and April 15, 2010 are eligible for the extension.
Three Simple Steps to Determine Your Eligibility for the Small Business Health Care Tax Credit
1. Determine the total number of your employees (not counting owners or family members), as Full-Time Equivalent (FTE):
Full-time employees (40+ hours/week)
________________
Full-time Equivalent (FTE) of Part-time Employees
Calculate FTE by dividing total annual hours of part-timers by 2080
+________________
Combined Total Employees (as FTE)
=________________
IF Combined Total Employees IS LESS THAN 25, continue to step 2.
IF NOT, you are not eligible for the tax credit.
2. Calculate the average annual wages of all employees (not counting owners and family members:
Total Annual Wages
_________________
Divide by total Actual Employees (part-time and full-time)
/ __________________
Average Wages
=________________
IF Average Wages IS LESS THAN $50,000, continue to step 3.
IF NOT, you are not eligible for the tax credit
3. Do you pay at least 50% of the insurance premiums for your employees at the SINGLE COVERAGE RATE?
IF SO, you may be able to claim the Small Business Health Care Tax Credit and should continue to www.IRS.gov for more information. IF NOT, you are not eligible for the tax credit.