Taxable year 2010
Small Businesses (under 25 full time employees) can get a Tax Credit when they provide health insurance for their employees.
YOU CAN DO THIS! We’ve made it easy to understand how to calculate this, at least to see if you are in the ball park of qualifying for a tax credit.
Starting in 2010, a tax credit (different than a tax deduction) could be given to a small business employer who purchased or has/had group health insurance for their employees that met certain guidelines.
New Guidelines For 2010
These guidelines are that the business cannot have over 25 full time “equivalents employees” (see below) and that the average income for the employees did not or cannot exceed $50,000. Also, the employer must be contributing towards the premium (meets IRS code for contribution, usually a minimum uniform percentage of at least 50% of the premium for the employee). If the employer is NOT contributing the minimum per the IRS code Sec. 45R(d)(4) you will not qualify for a tax credit.
The employer could get up to a 35% Tax Credit, and Tax Exempt 501C Employers can get up to 25% Tax Credit years 2010-2013. These percentages increase in 2014 to 50% max credit for small employers and 35% for tax exempt employers. In 2014, however, the employers MUST buy through the SHOP Exchange in order to qualify for the Tax Credit.
The maximum credit for the small business is if the average wage is $25,000 per year per employee or less, and has 10 full time equivalent employees or less. As wages and number of employees grows, the tax credit decreases, until the average annual wage of $50,000 per employee and has 25 or more full time equivalents is reached. Beyond this point, there is no more tax credit eligibility.
To Figure Out If a Small Business Owner Qualifies for the Small Business Tax Credit
Determine who’s hours are counted. The 1st PHASE – Step 1 is to see if you qualify for a tax credit. You must first calculate the number of Full Time Employees AND Full Time Equivalents to see if you have 25 or fewer full time equivalents employees to qualify for the Tax Credit. Who is included and who is not included (excluded?)
Figure out first who your excluded employees are. All of the following in this paragraph are to be excluded from the equation. This would be seasonal workers that work less than 120 days in a calendar year, self-employed (owners) of any company that owns 2% or more of an S-Corp, or 5% of a Corporation, Sole Proprietors, Partners in Partnerships. Certain family members such as: Children, Siblings, Step-siblings, Parents, Step-parents, Nieces, Nephews, Aunts, Uncles, Sons-in law, Daughters-in-law, Fathers-in-law, Brothers-in-law, Mothers-in-law, Sisters-in-law, Dependents, Ancestry, and any member of the household of an owner or partner who qualifies as a dependent.
The 2nd step is to aggregate (add up everyone’s hours) that is not excluded. The most effective method of calculating this is called “Actual Hours of Service”. So you’ll add all full time employees (max you can count is 2080 hours in a year no matter how much overtime they may have worked) and your part time employees (hours they work in a calendar year) and Seasonal workers are counted IF they worked over 120 days in the taxable year. Add this big number of total hours worked up together and then divide by 2,080. If you do not have hours tracked, see below under [Alternate methods of calculating hours of service].
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