As you probably know, on 3/30/10, President Obama signed into law the final piece of his promised Health Reform legislation. Whether you are for or against it, no one can argue that this is landmark legislation that will result in a monumental shift in how health care is delivered in this country. This Health Reform legislation is massive—well over a thousand pages—and covers numerous areas, both tax and nontax. One provision worth noting is the Small Employer Health Insurance Tax Credit, which takes effect in 2010 through 2013. This newly created tax credit is for small employers who purchase health insurance for their employees. To be a small employer qualifying for this new credit you must:

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