Small Business Health Care Tax Credit

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. The following questions and answers provide information on the credit as it applies for 2010-2013, including information on transition relief for 2010.

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 (for example, an employer with fewer than 50 half-time workers may be eligible).
  • 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 (25% for tax-exempt employers). On Jan. 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 wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Claiming the Credit:

  • Small employers, whether businesses or tax-exempt organizations, will use new Form 8941.
  • Credit for Small Employer Health Insurance Premiums, to calculate the small business health care tax credit.
  • Small businesses will include the amount of the credit as part of the general business credit on their income tax returns.
  • Tax-exempt organizations will include the amount of the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T. This will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– to claim the small business health care tax credit. 

Links:

Why Member Businesses Benefit:

Summaries:

Detailed Explanation and FAQs:

To Determine if Qualified:

Tax Credit Calculator:

Application Forms:

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