1. Employ no more than 25 Full-time Equivalent (FTE) employees during the tax year,
2. Pay annual FTE wages that average no more than $50,000 for the year,
3. Have a qualified health insurance plan or arrangement under which you pay at least 50% of the premiums on a uniform basis for employees who enroll in the plan.

Generally, to qualify for the credit, the employer must pay the same percentage (which has to be at least 50%) of all its employees’ premiums. However, under a transition rule for 2010 only, an employer can qualify even if it pays differing percentages of different employees’ premiums as long as all the employer payments are at least 50% of each employee’s premium (based on single—employee only—coverage). In addition, premiums paid in 2010 before the Health Reform legislation was enacted can qualify for the credit.

The credit generally equals 35% of the amounts paid by the employer during the year for employee coverage. However, the full amount of the credit is available only for employers that employee 10 or fewer FTE employees and have average annual FTE wages of less than $25,000 for the year. Also, no credit is allowed for premiums paid on behalf of partners, sole proprietors, 2% shareholders of an S corporation, 5% owners of the employer, and dependents of these individuals. Other limitations may apply as well.

The small employer health insurance credit will be claimed on the employer’s income tax return. It can offset regular income taxes and alternative minimum tax. Any unused credit can be carried back for one year (but not before 2010) and forward for 20 years to offset future taxes. To determine if your business qualifies for this tax credit, give us a call at the office so that we can help you maximize the benefits of this legislation.

Tucker and Company, P.C.
Certified Public Accountants

1. Did you recently hire or re-hire any employees?
2. Did they begin work after 2/3/2010?
3. Were they unemployed or employed for 40 hours or less during the 60-day period ending on the date their employment began?
4. Do you have a signed affidavit from the employee or can you get the employee to sign a Form W-11 that affirms question 3?
5. Are they not employed to replace another employee, unless the other employee separated from employment voluntarily or was terminated for cause?
6. Are they not family members of or related in certain other ways to the employer?

If you have answered yes to all of these questions, you may have an employee that could qualify for the HIRE ACT for which the employer receives a credit for the employer’s 6.2 percent share of social security tax on all wages paid to qualified employees from March 19, 2010 (the day after the date of enactment of the HIRE Act) through December 31, 2010. The employee’s 6.2 percent share of social security tax and the employer and employee’s shares of Medicare tax still apply to all wages. The payroll tax exemption is claimed on the employer’s quarterly federal payroll tax return. If you think you have employees that may qualify for this credit, give us a call so that we can discuss each one’s eligibility; there are a few circumstances that could disqualify them.

In addition to this payroll tax provision, the Act allows taxpayers to increase their business credit by the lesser of $1,000 or 6.2% of wages for a 52-week period for each retained worker that satisfies the minimum employment period. There are additional requirements that must be met in order to claim this credit, which may be claimed on the employer’s 2011 income tax return.

Since these provisions and restrictions are somewhat complicated, it would be a good idea to give us a call now to see if your business can take advantage of the hiring incentives included in this legislation.

Tucker and Company, P.C.
Certified Public Accountants