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Small Business Employee Benefits and HR Blog

IRS Encouraging Small Business Health Care Tax Credit

With business tax-filing deadlines fast approaching, the Internal Revenue Service is encouraging small employers that provide health insurance coverage to their employees to check out the small business health care tax credit and then claim it if they qualify.

The recently-revamped Small Business Health Care Tax Credit page on IRS.gov contains substantial information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. These include a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently-asked questions, a YouTube video and a webinar.Small Business Tax Credit


The small business health care tax credit was included in the Affordable Care Act enacted two years ago. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. The credit is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees.
Depending upon how they are structured, eligible small employers are likely subject to one of the following three tax-filing deadlines, which fall in coming weeks:

  • March 15
  • April 17
  • May 15

Small Business Health Care Tax Credit Scenarios

Examples of Employers Receiving the Credit


Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010

Main Street Mechanic:

    • Employees: 10 
    • Wages: $250,000 total, or $25,000 per worker 
    • Employee Health Care Costs: $70,000 

2010 Tax Credit: $24,500 (35% credit)

2014 Tax Credit: $35,000 (50% credit)

Example 2: Restaurant with 40 Part-Time Employees Gets $28,000 Credit for 2010

Downtown Diner:

    • Employees: 40 half-time employees (the equivalent of 20 full-time workers) 
    • Wages: $500,000 total, or $25,000 per full-time equivalent worker 
    • Employee Health Care Costs: $240,000 

2010 Tax Credit: $28,000 (35% credit with phase-out)
2014 Tax Credit: $40,000 (50% credit with phase-out)

Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010

First Street Family Services.org:

    • Employees: 9 
    • Wages: $198,000 total, or $22,000 per worker 
    • Employee Health Care Costs: $72,000 

2010 Tax Credit: $18,000 (25% credit)

2014 Tax Credit: $25,200 (35% credit)

 


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