Among the many changes brought on by the Health Care Act of 2010, Code Sec. 45R, the Small Employer Health Care Credit (the Credit), was designed to encourage small business employers to provide coverage to their employees. However, businesses have been left with several questions as to the specific requirements for eligibility and filing to claim the Credit.
Eligible Businesses An eligible business is defined as a business that has fewer than 25 “full-time equivalent” (FTE) employees and pays average wages of $50,000 per year or less. An FTE calculation will take into account aggregate hours worked by part-time employees in determining eligibility. Seasonal workers, defined as an employee that works fewer than 120 days out of the year for an employer, are not included in calculating FTEs.
To determine average wages, employers must include all wages, compensation and commissions including overtime, bonuses, vacation and sick leave. Employee hours and wages are counted regardless of a specific employee’s election in or out of employer-sponsored coverage.
How to Claim The Credit can be claimed on Form 8941, Credit for small Employer Health Insurance Premiums, attached to the employer’s annual income tax return.
Amount of the Credit The maximum credit is equal to 35 percent of premiums paid by eligible small businesses for tax years 2010 to 2013. In 2014, the maximum credit will increase to 50 percent of premiums paid by eligible small businesses.
State Credits and Subsidies In general, state credits and subsidies will reduce the credit, most often by creating a ceiling. Employers will need to consult state guidelines to determine the extent of this limit in their own case.
It is recommended that small business owners consult with their local tax professional when seeking to claim the credit.
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