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Many small businesses look for ways to retain employees by providing benefits packages, but often need to evaluate the cost of the benefits packages versus the benefits of retaining and attracting employees.
Available immediately is a new credit to certain small businesses and non-profits to help cover the cost of existing health care plans to their employees. The credit is also available to businesses looking to initiate coverage in 2010. So, if your company has been thinking about employee benefits packages now may be the time to act.
What type of business will qualify for the credit?
- Must have fewer than 25 full-time equivalent employees (FTEs) for a taxable year, (a business with 50 or fewer part-time employees will qualify as well.)
- The average annual wages must be less than $50,000 per FTE, and
- Cover at least 50% of health care coverage for employees.
How much credit is available?
| Eligible Employers |
Maximum Credit beginning 2010 |
Maximum Credit beginning 2014 |
| Small businesses |
35% of premiums paid |
50% of premiums paid |
| Tax-exempt organizations |
25% of premiums paid |
35% of premiums paid |
*IRC code section 45R provides the steps for calculating the credit available.
PHASE-OUT: Note that there are gradual phase-outs for businesses with average wages between $25,000 and $50,000 and the equivalent of between 10 and 25 full-time workers.
When can the credit be claimed?
Eligible small businesses: Claim as a general business credit on 2010 income tax return.
Tax-exempt organizations: Watch this space as the IRS will provide further information on how to claim this credit in the coming months.
Sources:
RIA Checkpoint, TaxCore – IRS Documents, IRS Notice 2010-44 on Section 45R Health Care Tax Credit for Small Businesses, May 18, 2010
RIA Checkpoint, Lead Tax Report – IRS Provides Guidance on Determining Eligibility for Small Firm Health Care Credit, May 18, 2010
For more information, please contact:
Linda Zheng | 215-564-1900 Back to News Archive
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