The IRS provided additional guidance this week for small employers who want to claim the new small business health care tax credit for the 2010 tax year. The credit was part of the Affordable Care Act enacted in March and is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses that primarily employ moderate- and lower-income workers.
The new guidance clarifies that the credit is available in situations where small employers cover their workers through insured multiemployer health and welfare plans, or where they subsidize their employees' health care costs through a broad range of contribution arrangements.
Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses. The maximum credit will increase to 50 percent in 2014.
The maximum credit goes to the smallest employers--those with 10 or fewer full-time equivalent (FTE) employees--paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year.
There is a new IRS form--Form 8941, Credit for Small Employer Health Insurance Premiums--that employers use to claim the credit. The IRS has the instructions to Form 8941 on its website which are designed to help small employers correctly figure and claim the credit.
See the IRS website for more information about the credit, including a step-by-step guide to claiming the credit and answers to frequently asked questions.