As a result of the federal health care overhaul passed in May, some small businesses that provide health care coverage to their employees will be able to take advantage of tax credits from the federal government.
Under the program, employers with fewer than 25 full-time employees who pay less than $50,000 in average annual wages qualify for the credit starting in 2010, according to the IRS. For these employers, the maximum tax credit available is up to 35 percent of the employer’s payments of employees’ health premiums.
Beginning in 2014 the maximum credit is 50 percent of the employer’s contribution toward premiums and 35 percent of employer contributions for nonprofit organizations, according to the Congressional Research Service. The small business tax credit that is available beginning in 2014 is only available to an employer for two consecutive tax years. Thus, the small business tax credit is potentially available for a total of six years – the first credit availability from 2010 through 2013, plus the two-year credit period beginning in 2014.
To be eligible, employers must pay at least 50 percent of their employees’ premiums. Only the employer’s contributions will be counted in calculating the amount of the credit.
Since the number of employees is based upon an employee’s status as full-time or part-time, employers with more than 25 part-time employees could also qualify for the credit. For example, an employer with 46 part-time employees technically has only 23 full-time equivalent employees and would therefore qualify.
The credit is claimed on the employer’s annual tax return. For additional information on the small business tax credit, visit the IRS website at www.irs.gov.