From a law firm through our B2B CFO® network:
“With all of the attention being given to the Supreme Court’s decision to uphold the Affordable Care Act —the so-called ObamaCare— little notice has been paid to some of the lesser known parts of that Act. In order to soften the cost impact of its health insurance provisions, for the 2010-2013 tax years the Act provides small businesses with low- and moderate-income workers a tax credit of up to 35% (which will increase for certain employers to 50% on January 1, 2014) to encourage them to offer health insurance coverage to their workers for the first time or to maintain the coverage they already have.
In general, the credit is available to employers that:
1.Have fewer than 25 full-time employees, or a combination of 25 full-time and part-time employees (for example, two half-time employees equal one employee for purposes of the credit) with average wages of less than $50,000 a year; and
2.Pay at least half (1/2) the cost of single (not family) health care coverage for each of those employees. Premiums for both medical and dental insurance are eligible for this credit.
If an employer pays only a portion of the premiums and employees pay the rest, the amount counted to calculate the credit is only the portion paid by the employer. For example, if an employer pays 80 percent of the premiums and its employees have the other 20 percent taken out of their pay, only the 80 percent paid by the employer will count towards the credit.
The amount of the credit is based on on a sliding scale—the smaller a business, the bigger the credit. So, for example, the allowable credit is reduced for a business with more than 10 full time employees or with average wages of more than $25,000.
Here’s what this credit might mean for you. If you pay $50,000 a year toward workers’ health care premiums and qualify for the full 35% credit, you will save $17,500 on your income tax return. If you save $17,500 a year from tax year 2010 through 2013, that’s total savings of $52,500. If, in 2014, you qualify for a slightly larger credit, say 40%, your savings will go from $17,500 a year to $20,000 a year.
If you are an eligible small business employer that did not owe any income tax during a year, you can carry the credit back or forward to other tax years. Also, since the amount of your health insurance premium payments will be more than your total credit, you can still claim a business expense deduction for the amount of your health insurance premiums in excess of the credit.
You must use IRS Form 8941, “Credit for Small Employer Health Insurance Premiums,” to calculate the credit, and include the credit on your income tax return as part of your general business credit. If you were eligible for the credit in 2010 or 2011 but forgot to claim it on your tax returns there may still be time to file an amended return.”
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