The Health Care Act contains many other provisions, and even the rules we have outlined here involve much more than we’ve been able to include. Please let us know if you have any questions about these upcoming changes. Chris Loughran (503)221-7565 Tim Kalberg (503)221-7511 David Uslan (503)221-7597 Roy Abramowitz (503)221-7500 Keith Meyers (503)221-7579 Eric Hormel (503)221-7585 Brigitte Sutherland (503)802-8613 Kimberly Woodside (503)221-7592 Susan Sterne (503)221-7531
Small employer tax credit available for tax years starting in 2010
Effective for tax years beginning in 2010, small employers (defined below) who pay for 50% or more of the cost of their employee’s health coverage will be eligible for a credit for up to 35% of the employer’s cost. The maximum credit is available to a business with no more than 10 full-time equivalent (FTE) employees, whose average annual wages do not exceed $25,000. The credit phases out and is no longer available to an employer with more than 25 FTE employees, or an employer whose employees’ average annual wages exceed $50,000. For tax-exempt employers, the credit percentage maximum is 25% rather than 35%.
In determining the number of FTE employees and average annual wages, sole proprietors, the owners of an LLC or partnership, more-than-2%-owners of an S corporation, and 5% owners of other businesses are not taken into account, which will make this credit more available to closely-held businesses with fewer employees.
This credit is in effect for tax years 2010, 2011, 2012 and 2013; after that, it will be available only to employers who provide coverage through a state insurance exchange, and only for the first two years for which they do so. The credit rate increases to 50% from 35% for those two years (from 25% to 35% for tax-exempt employers). It would be possible for a small employer to receive the 35% credit for 4 years (2010 through 2013) and the 50% credit for 2 more years (2014 and 2015) provided the employer provides insurance through an exchange beginning in 2014.
This bulletin is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern.
Based on the most recent "best practice" standards for tax advisors issued by the Treasury Department, commonly referred to as Circular 230, we wish to advise you that this bulletin has not been prepared to be used, and cannot be used, to provide assurance that penalties which may be assessed by the IRS or other taxing authority (including specifically section 6662 understatement penalties) will not be upheld.