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Small Business Owners Eligible for Tax Break

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By Rachel Stockton

As part of the Affordable Health Care Plan of 2010 that President Obama signed earlier this year, the IRS has announced on its website that small businesses may be eligible for the “small business health care tax credit”.  With certain restrictions, the credit is also being offered to tax-exempt organizations.

Under the provision, businesses that pay at least 50% of single health insurance for their employees can claim the credit; eligible organizations are those who pay $25,000 or less in wages to their employees.   Additionally, wages must constitute less than $50,000.

For those with less than 25 full-time employees (FTE), up to 35% of their premiums can be credited, depending on other qualifying factors.  Firms with 50 half-time employees are also construed as having 25 FTE.  In 2014, credit will increase up to 50%.

Tax exempt organizations may also claim the credit at a maximum of 25% of premiums paid.  For a clear definition of non-profit status, go to the IRS website.

To determine eligibility, businesses must go through the steps below:

a.       Calculate the number of FTE by counting full-time employees and by calculating the number of full-time equivalent employees.
b.      Calculate the annual wages paid by the company by dividing total wages by the number of employees (excluding the business owners and their families).
c.       Determine you pay at least 50% of employee premiums at the single rate.

In an effort to inform the public about the new credit, the government sent out postcards to small business owners, beginning April 19.  Business owners who did not receive a postcard are urged to visit the IRS website for confirmation of eligibility (http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf).

The IRS website also gives several illustrative examples of how various business owners can calculate the amount of their credit, depending on their circumstances.

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