Friday, May 7, 2010

Small Business Tax Credit

One of the first health care reform provisions to go into effect under the Patient Protection and Affordable Care Act is the new small employer health insurance credit for small businesses that provide health care coverage to their employees.

This credit is worth up to 35% of eligible insurance premiums. The IRS announced that it will be sending postcards to more than 4 million business and not-for-progit organizations to inform them of the new credit.

Eligibility Qualifications for 2010:

  • Have a maximum of 25 full time employees for the year*

  • Pay no more than $50,000 annual wage per full time employee

  • Pay at least 50% of the health insurance premiums on a qualifying plan.

* Full time employees are determined by the IRS term FTE (Full Time Equivalent) Employees. For purposes of the small business credit, FTE employees means a number of employees equal to the number determined by dividing:

  1. The number of total hours of service for which wages are paid by the employer to nonseasonal employees during a taxable year, by

  2. 2080

  3. The result is rounded down to the next whole number to determine the number of FTE employees.

Do Not count more than 2080 hours for any employee, and don't count any employees that fall into the following categories:

  • Business owners - including: sole proprietors, LLC members, 5% or more owners in a C corporation, partners in a partnership, 2% shareholders in an S corporation

  • Family members of the individuals listed above

  • Employees that are considered seasonal employees.

We will discuss this new tax credit in detail in our next post.

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