IRS Offers Guidance on New Tax Credit for Small Employers
On May 3, 2010, the Internal Revenue Service issued Revenue Ruling 2010-13 to help implement the small business health care tax credit created by the Patient Protection and Affordable Care Act (see below). The guidance lists the average premium for the small group market in each state for the taxable 2010 year, as determined by the Department of Health and Human Services.
On Sept. 7, 2010, the IRS posted a draft form that small businesses and tax-exempt organizations can use to calculate the small business health care tax credit when they file income tax returns in 2011 (see IRS Form Helps Small Businesses Claim Health Care Tax Credit).
In mid-April 2010, the Internal Revenue Service began mailing postcards to more than 4 million U.S. small businesses and tax-exempt organizations to make them aware of the benefits of the recently enacted small business health care tax credit.
Included in the Patient Protection and Affordable Care Act enacted in March 2010, the credit is one of the first health care reform provisions affecting employers directly to go into effect. The credit, which takes effect in 2010, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they have.
“We want to make sure small employers across the nation realize that—effective for tax year 2010—they may be eligible for a valuable new tax credit. Our postcard mailing, which is targeted at small employers, is intended to get the attention of small employers and encourage them to find out more," said IRS Commissioner Doug Shulman, in a released statement. “We urge every small employer to take advantage of this credit if they qualify.”
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is targeted to help small businesses and tax-exempt organizations that employ primarily low- and moderate-income workers.
For tax-years 2010 through 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to small employers—those with 10 or fewer full-time equivalent (FTE) employees—paying annual average wages of $25,000 or less. The credit is unavailable to employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.
Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help might qualify for some tax advantages even if they employ more than 25 individuals.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the IRS web site, IRS.gov.
Stephen Miller is an online editor/manager for SHRM.
Small Businesses Ponder Impact of Health Care Reform, HR News, April 2010
Tax Credits for Small Businesses, SHRM Online Legal Issues, March 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page