Small Business Health Care Tax Credit

As a business owner, you may or may not have already received a postcard from the IRS notifying you of this credit.  This tax credit is estimated to save small businesses $40 billion by 2019.  There are rumors that this is part of an additional tax incorporated into the health care bill.  However, this is not the case- this is a tax credit that can be used to a business' advantage.

There are several eligibility rules for the credit.  A qualifying employer must cover at least 50% of the cost of health care for some of its workers.  A qualifying firm must have less than 25 full-time equivalent employees and average annual wages must be below $50,000.  The credit is limited based upon the average cost of health insurance in your business' state.  The amount of the credit can not exceed the combination of the federal income tax it withholds and the medicare tax associated with the business and employees.

The credit is for up to 35% of the small business' health insurance premium costs in 2010.  In 2014, the credit increases to 50% of the the small business' health insurance premium costs.  Note that as always, there are phase-outs for the full credit.  These are initiated when average wages exceed $25,000 and for firms with the equivalent of 10 full-time workers.

As always, if you have any any specific tax, accounting, or consulting questions, please do not hesitate to call me