As tax season approaches, it is important to remember that the Affordable Care Act includes small business tax credits that could help your business. Store owners and managers should be sure to discuss healthcare tax credits with their tax professionals.
The new tax credit guidance, located on the IRS.gov website, includes a one-page form and instructions small employers can use to claim the credit for the 2012 tax year: the new Form 8941, “Credit for Small Employer Health Insurance Premiums,” and the revised Form 990-T. The IRS has also posted the instructions to Form 8941 and Notice 2010-82, which are both designed to help small employers correctly calculate and claim the credit.
Through 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. In general, the credit is available to small businesses that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
Small businesses can claim the credit for 2010 through 2013 and for any two years after that. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.
Even small business employers that did not owe tax during the year can carry the credit back or forward to other tax years. Also, since the amount of health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent employees — that pay annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more full-time equivalent employees or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of full-time equivalent employees and not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.
Eligible small businesses would first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on their income tax return.
Tax-exempt organizations would first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.