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Health Care Reform – Small Business Health Care Tax Credit (2012)

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If you are a small employer, you may be entitled to a tax credit that may put money in your pocket.  See if you qualify according to the following guidelines:

1.      Have fewer than 25 full-time equivalent employees.

2.      Pay an average wage of less than $50,000 a year.

3.      Pay at least half of employee health insurance premiums.

Get more information on the Small Business Health Care Tax Credit and find out how it will make a difference to you.       

For tax years 2010 through 2013, the maximum credit is 35% for small business employers and 25% for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014 allowing those maximum credits to increase to 50% and 35%, respectively. 

To help explain how this works we have provided the following scenarios, one being the current year and one for 2014 when the tax credit is expected to be enhanced to provide an even larger savings:

Your 2012 annual contribution towards Employee Benefits:           $50,000

You qualify for tax credit of 15%:                                           - $  7,500

New annual contribution towards Employee Benefits:                         $42,500

 

Your 2014 annual contribution towards Employee Benefits:         $50,000

You may qualify for tax credit of 20%:                                    -$10,000

New annual contribution towards Employee Benefits:  
                    $40,000

Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

When filing for the credit, you must use IRS Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.  If you are a small business, include the amount as part of the general business credit on your income tax return.

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so.

Don’t forget … if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.

The Health Care Reform Act has many facets to it, and there are many changes to keep track of. We can help you with the timeline as to when those changes come into effect.  This article explains one positive aspect you can take advantage of right now.