2010 Tax Credit for Small Businesses that Provide Health Coverage

Small businesses that provide health care coverage for their employees were given a 2010 tax credit within the recent health care legislation.  The credit is generally 35% of  the employer’s premium contribution (25% for tax-exempt entities).

Eligibility to qualify as a small employer is reevaluated each tax year. The following conditions must be met:

1) employer has 25 or fewer full-time equivalent (FTE) employees

2) the average annual wages of these employees are not greater than $50,000

3) the employer has a qualified health care arrangement in effect

Not all employees can be included in the determination of FTEs. Sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses should be excluded. Also, family members of these owners and partners should not be taken into account as employees.

While the qualifications for the credit are fairly straightforward, the actual calculation can be quite convoluted (go to http://www.youtube.com/watch?v=sb59uJNJVJc for an entertaining discussion of the calculation). If your company meets the criteria outlined above, you may qualify for the credit.

Please contact our office for more information on the calculation process or on tax planning in general.

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