Small Business Health Care Tax Credit Update

The Internal Revenue Service has posted information on how small businesses and tax-exempt organizations can claim the Small Business Health Care Tax Credit.  In a recently updated Frequently Asked Questions page about the tax credit, the IRS clarifies questions about the credit which will be claimed on a new Form 8941.  This credit is applicable for all tax years beginning in 2010.

The tax credit, provided as part of the health care reform bill, is designed to encourage small employers to offer health care coverage. A qualifying employer must:

1. Cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate and,
2. Have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible) and,
3. Pay average annual wages below $50,000. Both taxable (for profit) and tax-exempt entities qualify.

The credit is worth up to 35 percent of a small business’ premium costs in 2010 or 25 percent of a tax-exempt organization’s. 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.

For more information, visit the IRS's Small Business Health Care Tax Credit Page.