The IRS has issued preliminary guidelines on the tax credit available to small employers that provide health insurance benefits to employees.
Included in the Patient Protection and Affordable Care Act signed into law by President Obama in March, the credit is one of the first health care reform provisions to go into effect.
The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
“We want to make sure small employers across the nation realize that—effective this tax year—they may be eligible for a valuable new tax credit,” IRS Commissioner Doug Shulman says. “We urge every small employer to take advantage of this credit if they qualify.”
In general, 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- and moderate-income workers.
For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible tax-exempt organizations.
The maximum credit goes to smaller employers—those with 10 or fewer full-time employees—paying annual average wages of $25,000 or less. Employers 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 full-time employees or more, or that pay average wages of $50,000 per year or more.
Eligible small businesses can claim the credit as part of the general business credit, starting with the 2010 income tax return they file in 2011.
Advice: Visit the IRS’ dedicated portal page for more health care reform-related tax information for employers: www.irs.gov/newsroom/article/0,,id=223666,00.html.