IRS Releases Small Employer Health Tax Credit Forms and Guidance
Credit generally available to small employers that pay at least half of premiums for single coverage.
Included in the Affordable Care Act enacted in March, the small business health care tax credit encourages small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have.
On Dec. 2, the Internal Revenue Service (IRS) released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. IRS also released a one-page form and instructions small employers will use to claim the credit for the 2010 tax year.
According to IRS, the new guidance clarifies that a broad range of employers qualify for the credit, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multi-employer health and welfare plans, and employers that subsidize their employees' health care costs through a broad range of contribution arrangements.
In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. IRS said it targeted the credit to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations, IRS reported.
The maximum credit goes to employers with 10 or fewer full-time equivalent (FTE) employees paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals, IRS noted.
Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.
Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T.
For a step-by-step guide to claiming the credit, visit IRS.gov, the agency's Web site.