Small Group Tax Credit

February 27, 2013

Are you aware of the Small Business Health Care Tax Credit that helps small businesses and small tax-exempt organization afford the cost of covering employees?  Last month the Internal Revenue Service began mailing postcards to small businesses to make them aware of the benefits available from health care tax credit.  One of the first provisions to go into effect under the health care reform act is this new tax credit.

Generally speaking, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low to moderate income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Complete details about the Small Business Health Tax Credit can be found on the Internal Revenue Servicewebsite. A video has been released that explains the who, what, why, and how of the Small Business Tax Credit. There is also a simple 3 step flow chart that will help small employers (business or tax-exempt) determine if they qualify for the Small Business Health Care Tax Credit.

Post author Loren Pleet