The small business health care tax credit is part of the Affordable Care Act of 2010. Small business employers with fewer than 25 full time equivalent employees, who pay an average annual wage of less than $50,000 per employee, and who pay at least half of the cost of single (not family) employee health care coverage for those employees under a qualifying arrangement, may qualify for the credit. The credit is designed to help both small businesses and small tax-exempt organizations that provide health insurance for their employees. The amount of the credit is based upon a sliding scale; the smaller the business or tax-exempt organization, the larger the credit.
For tax years 2010 through 2013, the maximum credit for small business employers that qualify is 35% of premiums paid, and 25% for small tax exempt employers. The credit is expected to increase to a maximum of 50% and 35% respectively as of January 1, 2014.
For small business employers who owe no taxes, the credit can be carried forward or back to other tax years. And, eligible small businesses can still claim as a business deduction, premiums paid in excess of the allowable credit. For small tax-exempt organizations, all or a portion of the credit may be refundable, even if no income taxes were paid.
The credit is calculated by using IRS Form 8941, Credit For Small Employer Health Insurance Premiums. Small business employers can then claim the allowable credit on their return, while tax-exempt employers must file IRS
Form 990-T, Exempt Organization Business Income Tax Return, even if they would not ordinarily do so.
Tax filing deadlines vary, depending upon how the eligible small business employer is structured; for example, March 15 for corporations that file on a calendar year basis, April 17 for sole proprietors, S-corporations, and so on, and May 15 for tax exempt organizations that file on a calendar year basis. Depending on the situation and IRS guidelines, filing extensions may be available and it may be possible to amend previously filed returns. Small business employers and small tax exempt organizations wishing to take advantage of the credit in 2012 and 2013 should review their health insurance plans now to see what adjustments can be made in order to qualify for the credit.
If you think that you may qualify for this credit, we would encourage you to check out the following IRS websites, contact your tax advisors, or give us a call at Wright Beamer.