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IRS finalizes rules for small employers to follow on new Health Care Tax Credit

January 7, 2011
The Internal Revenue Service has issued final guidance for small employers who are eligible to claim the new Small Business Health Care Tax Credit for the 2010 tax year. Instruction for filling out Form 8941 is at www.irs.gov/pub/irs-pdf/i8941.pdf.
           
The Small Business Health Care Tax Credit, included in the Affordable Care Act enacted last March, is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or to maintain coverage they already offer.
           
A broad range of employers meet the eligibility requirements, including small employers who cover their workers through insured multiemployer health and welfare plans, and employers who subsidize their employees’ health care costs through a broad range of contribution arrangements.
           
In general, the credit is available to small employers who pay at least half of the premiums for single health insurance coverage for their employees. Small businesses that are eligible can claim the credit for 2010 through 2013 and for any two years after that.
           
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses, and the maximum tax credit increases in 2014 to 50 percent of premiums paid in 2014. 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 who have 25 or more FTEs or who pay average wages of $50,000 or more a year.
           
Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers who use part-time workers may qualify even if they employ more than 25 individuals. Not all dealerships will quality for the credit. Consult your dealership’s tax professionals to determine eligibility for the Small Business Health Care Tax Credit.
           
An eligible small business will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.
 

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