As a small employer, do you know that you qualify for the Small Business Health Care Tax Credit that will put money in your pocket? This credit also applies to non-profit organizations. For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. The credit is calculated based on the amount you paid towards health insurance premiums. It also works on a sliding scale, the smaller the business or charity, the bigger the credit. Here is a snippet of how it works.
1) You must qualify as a Small Employer as defined by the IRS. To qualify you must have less than 25 full Time Equivalent employees (FTE). Here is how to calculate FTE
a) Full-time is considered 30 or more hours per week.
b) Determine how many hours all your employees worked in a year.
c) Divide “b” above by 52 to get the weekly average
d) Divide the weekly average by 30 and you have your FTE(it’s ok to round down)
For e.g. if you have 2 part time employees working an average of 20 hours per week than your FTE is 1.
2) Pay an average wage of less than $50,000 a year( Calculated as total annual wages/ FTE )
3) Pay at least half of the employee’s health insurance premiums.
4) Use IRS Form # 8941 and Form # 990-T (for tax –exempt employers) when you file your taxes.
5) Collect your credit. Small business employers can carry the credit to previous years or carry it forward to the next year. If you are a tax-exempt employer, you may be eligible for a refundable credit.
Click here for a link to the IRS website with sample tax credit scenarios.
The information stated above is not meant to be legal or accounting advice please follow up with your CPA or the IRS for more information on how the new tax law applies to your specific scenario.