Small businesses receiving state health care tax credits may also qualify for the full federal tax credit, and may also be eligible to receive credit for add-on dental and vision coverage, according to new IRS guidelines released Monday.
Days after The National Federation of Independent Business joined 20 states in a lawsuit challenging the new health care reform law, the IRS released detailed rules to help small employers determine whether they qualify for the credit and to estimate the amount of the credit.
Small employers that pay at least half the cost of single coverage for their employees in 2010 are eligible for the credit, included in the Affordable Care Act. The IRS states the credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
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Facts about the small business health care tax credit:
- For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations.
- The maximum credit goes to smaller 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 FTEs or more or that pay average wages of $50,000 per year or more.
- Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
- Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
"Small business owners everywhere are rightfully concerned that the unconstitutional new mandates, countless rules and new taxes in the health care law will devastate their business and their ability to create jobs," said Dan Danner, president and CEO of The National Federation of Independent Business, in a statement released May 14.
"They are also concerned about their personal freedoms. This law is the first time the federal government has required individuals to purchase something simply because they are alive. If Congress can regulate this type of inactivity, then there are essentially no limits to what they can mandate individuals to do."
According to a report from the Associated Press, the White House estimates up to 4 million small businesses may qualify for the tax credit, but it's not clear how many will be eligible.
The IRS provides a step-by-step worksheet for small businesses to determine if they may qualify for the health care tax credit.
The IRS is requesting public comment on issues that should be addressed in future guidance. Submissions can be sent to CC:PA:LPD:PR (Notice 2010-44), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
Questions? The IRS has released a new FAQ page devoted to answering questions about the small business health care tax credit.
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