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Small Business Health Care Tax Credit
One of the provisions of the Affordable Care Act, signed into law by President Obama in March, provides certain small businesses and tax-exempt organizations with a health care tax credit. This tax credit is intended to encourage small employers to offer health insurance coverage to their lower income employees. The credit is effective for 2010 and, generally, applies to small businesses and tax-exempt organizations that pay for at least 50 percent of single health insurance coverage for their employees.
For 2010 through 2013, eligible small business employers can receive a maximum credit of 35 percent of the premiums that it pays and tax-exempt organizations can receive a maximum credit of 25 percent. Eligible small business employers and small tax-exempt employers are defined as those with 10 or fewer full-time equivalent (FTE) employees where the employer pays annual average wages of $25,000 or less. Businesses with more than 10 FTE employees or who pay more than an annual average of $25,000 in wages can still qualify for part of the credit as long as they do not have more than 25 FTE employees or pay more than $50,000 in annual average wages.
The maximum amount of the credit increases to 50 percent for small business employers and 35 percent for tax-exempt employers beginning on January 1, 2014. The IRS provides the following examples of how the credit works:
Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010 Main Street Mechanic:
2014 Tax Credit: $35,000 (50% credit)
Example 2: Restaurant with 40 Part-Time Employees Gets $28,000 Credit for 2010 Downtown Diner:
2014 Tax Credit: $40,000 (50% credit with phase-out)
Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010 First Street Family Services.org:
2014 Tax Credit: $25,200 (35% credit)
For more information on the small business health care tax credit, visit the IRS web site at http://www.irs.gov/newsroom/article/0,,id=220809,00.html.
For 2010 through 2013, eligible small business employers can receive a maximum credit of 35 percent of the premiums that it pays and tax-exempt organizations can receive a maximum credit of 25 percent. Eligible small business employers and small tax-exempt employers are defined as those with 10 or fewer full-time equivalent (FTE) employees where the employer pays annual average wages of $25,000 or less. Businesses with more than 10 FTE employees or who pay more than an annual average of $25,000 in wages can still qualify for part of the credit as long as they do not have more than 25 FTE employees or pay more than $50,000 in annual average wages.
The maximum amount of the credit increases to 50 percent for small business employers and 35 percent for tax-exempt employers beginning on January 1, 2014. The IRS provides the following examples of how the credit works:
Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010 Main Street Mechanic:
- Employees: 10
- Wages: $250,000 total, or $25,000 per worker
- Employee Health Care Costs: $70,000
2014 Tax Credit: $35,000 (50% credit)
Example 2: Restaurant with 40 Part-Time Employees Gets $28,000 Credit for 2010 Downtown Diner:
- Employees: 40 half-time employees (the equivalent of 20 full-time workers)
- Wages: $500,000 total, or $25,000 per full-time equivalent worker
- Employee Health Care Costs: $240,000
2014 Tax Credit: $40,000 (50% credit with phase-out)
Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010 First Street Family Services.org:
- Employees: 9
- Wages: $198,000 total, or $22,000 per worker
- Employee Health Care Costs: $72,000
2014 Tax Credit: $25,200 (35% credit)
For more information on the small business health care tax credit, visit the IRS web site at http://www.irs.gov/newsroom/article/0,,id=220809,00.html.
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Andrew Chan is the
founder of Integrative
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been an adviser for over 12 years and works with clients to integrate
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Cheryl Costa is a
managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.
Jamie Downey has been an
accountant for more than 14 years. He's a partner at Downey & Co. in
Braintree. Prior to joining the firm, he served as a manager in the
audit department of accounting firm KPMG.
