The IRS has provided guidance for firms that qualify for the “small business credit” under the 2010 health care legislation. (IRS Notice 2010-82)
Beginning in 2010, a small business with 10 or fewer full-time employees and average wages under $25,000 can claim a credit for 35% of the lesser of the cost of employee coverage or the average group premium for small businesses in the state. But the credit percentage phases out for bigger operations. No credit is available for a business with 25 or more workers or average annual pay of $50,000 or more.
Key point: Don’t count as employees a 2%-or-more S corp owner or 5%-or-more partner. Claim the credit on Form 8941, Credit for Small Employer Health Insurance Premiums.