Small business health care tax credit

After months of debate, health care legislation was passed earlier this year.  You may have questions on how this may help you afford health care coverage for your workers.  Here are a few answers:

Am I eligible? 

  • A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers.  Only the portion paid by the employer is taken into account when calculating the credit.  You can also count premiums toward some other types of plans, such as dental and vision.
  • 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). Sole proprietors, partners in a partnership, shareholders owning more than two percent of an S corporation, and any owners of more than five percent of other businesses are not taken into account as employees for purposes of the credit.
  • A qualifying employer must pay average annual wages below $50,000.

 How much is the Credit? 

  • The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
  • 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.

Calculating the credit can be tricky.  If you have any questions, please give us a call or email John Baka jbaka@hansellcpa.com

 

2010 HIRE act

President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. This new $17.5 billion legislation (scaled down from an earlier $150 billion package) is of particular interest to businesses as it includes new tax benefits directly related to hiring employees and writing off investments in equipment.

The new tax incentives for businesses to hire unemployed workers:

  • Payroll tax exemption of the employer’s share of Social Security taxes on wages paid to these workers after March 18, 2010.
  • Employer tax credit of up to $1,000 per worker

The new employees must meet these criteria in order to qualify for the business tax credits.

  • Hired between Feb 3, 2010 & Jan 1, 2011
  • Newly-hired employee was unemployed during the 60 days prior to starting work, or worked fewer than 40 hours for someone else during the 60 day period

Household employers are not eligible for the new tax benefits.

The first time you can claim this credit is on the second quarter payroll tax filing.  The Form 941 has been recently modified to incorporate this deduction.  In order to be entitled to the credit, the employee must complete the new IRS Form W-11 (download it at http://www.irs.gov/pub/irs-pdf/fw11.pdf) certifying that they indeed meet the criteria.  If your payroll provider does your payroll tax returns, you may need to work with them to determine how they will be collecting this information.

The HIRE Act is aimed at providing hiring incentives to restore some of the jobs lost in the latest economic recession. The goal is to help put Americans back to work as soon as possible. Business owners that hire qualifying workers sooner rather than later will get the most out of the tax credits, as the tax credits diminish over time, disappearing completely by January 1, 2011.

For more information please contact John Baka jbaka@hansellcpa.com