The health care reform bill or Patient Protection and Affordable Care Act that President Obama signed into law on March 23, 2010 is complex and difficult to decipher. This legislation has a number of components that will most likely impact you, your employees and your business for years to come. These include things like health care tax credits for small businesses, changes in eligible expenses for health accounts like FSAs and HRAs, extensions for dependent coverage, health provisions for retirees and much more.
In this article, we'll discuss what requirements the IRS sets forth for employers to be eligible for the new health care tax credit on your 2010 tax return.
Is Your Business Eligible for the Health Care Tax Credit?
Beginning the week of April 19, the Internal Revenue Service (IRS) started notifying over 4 million small businesses and small tax-exempt organizations about a new tax credit they could be eligible for if they provide health care coverage to their employees. California, New York, Texas and Florida topped the charts with more than a quarter million businesses receiving the new tax credit notification postcard in each state. See how many health care tax credit postcards were sent out to your state. Not sure if your business received this mailing from the IRS? View the postcard notice that the IRS sent to see if your company qualifies.
To Be Eligible for this Federal Income Tax Credit, a Qualifying Employer Must:
- Cover at least 50 percent of the cost of the single (employee-only) coverage rate for employees in 2010
- Have less than 25 full-time equivalent employees (or FTEs) for the tax year
- Pay less than $50,000 in average annual wages per FTE
How Much of a Health Care Tax Credit Could Your Company Receive... $15,000, $20,000?
The maximum health care tax credit varies depending on whether you are a small business or a small tax-exempt organization. For eligible small businesses, the maximum credit is 35% of your premium expenses. For tax-exempt organizations, the maximum credit is 25% of your premium expenses. This credit is for tax years 2010 through 2013 for both types of employers.
Here is an Example from the IRS Website Showing a $25,000+ Health Care Tax Credit for a Small Business With
EXAMPLE:For the 2010 tax year, a qualified small business employer (not tax-exempt) has 9 full-time equivalent employees (FTEs) with average annual wages of $23,000 per FTE. The employer pays $72,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's state) and otherwise meets the requirements for the credit. The credit for 2010 equals $25,200... which is 35% x $72,000.