As of March 23, 2010 a new law was signed into existence by the Congress and the President; the Patient Protection and Affordable Care Act.  This new law will give a tax credit to small employers that have health care coverage for employees.  On the Internal Revenue Service (IRS) website, there will be several pages, with different focuses, that will help to explain this new law.  The current Q&A page pertains to the tax years 2010-2013, in 2014 the rate will increase.

On the Q&A page, you will find the questions group under headings:

  • Employers Eligible for the Credit: Q&A 1-2
  • Calculation of the Credit: Q&A 3-8
  • Determining FTEs and Average Annual Wages: Q&A 9-15
  • How to Claim the Credit: Q&A 16-21
  • Anticipated Transition Relief for Tax Years Beginning in 2010: Q&A 22

April 19, 2010, The IRS started sending out postcards, http://www.irs.gov/pub/irs-news/health_care_postcard_notice.pdf, to small businesses to inform them of this new law and how much it can save them.

In short, the IRS has simplified the information:

“Eligibility Rules

  • Providing health care coverage: a qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm size: a qualifying employer must have less than the equivalent of 25 full-time workers.
  • Average annual wage: a qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

  • Maximum Amount: the credit is worth up to 35 percent of a small business premium costs in 2010.  On January 1, 2014 this rate increases to 50 percent (35 percent for tax-exempt employers.)
  • Phase-out: the credit phases out gradually for firms with average wage between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.”

but, suggest that a small business consult with their tax advisor first or call the IRS.

The IRS even has a 3 Simple Steps pdf form, http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf, to help a small business owner to determine if their business qualifies. 

Check it out – it may be worth your time and effort.

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