July 2010 Tax Tip:
Small Employer Health Insurance Tax Credit
For tax years beginning in 2010 through 2013, eligible small employers that purchase health insurance coverage for their employees may be able to receive a tax credit to help offset the cost of the insurance coverage.
How do you know if your business is an eligible small employer?
Your business must meet all the following requirements:
- The business employs no more than 25 full-time equivalent (FTE) employees during its tax year. The maximum hours for any one employee is 2,080 in a given tax year. The number of FTE employees is calculated by dividing the total hours worked by all employees during the year by 2,080. (Note: seasonal employees are not included in the total hours worked unless they worked for more than 120 days during the tax year. In addition, self employed individuals - partners and sole proprietors, 2% shareholders of an S corporation, 5% owners of the employer and dependents of self employed individuals are not treated as employees.)
- The business pays annual FTE wages that average no more than $50,000 during its tax year. The FTE wages are calculated by dividing the total wages your business pays by the number of its FTE employees and then rounding that number down to the nearest $1,000. (Note: seasonal employees that were not included in the calculation of FTE employees should not be included in the wages either.)
- The business has a qualified health insurance plan (or similar arrangement) that requires it to pay at least 50% of the premiums (on a uniform basis) on behalf of all the employees who enroll in the plan.
How do you qualify for the credit in 2010?
The business must pay the same percentage (which has to be at least 50%) of all its employees' health insurance premiums. Under the "transition rule" in 2010, the business can also qualify for the credit even if it is paying different percentages for different employee premiums as long as all the payments it makes are at least 50% of each employee's premium based on single employee coverage only. The maximum credit is 35% (25% if you are tax-exempt) of the premiums you pay as an eligible small business employer.
Questions?
If you would like more detailed information, please do not hesitate to contact us.
