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Many small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. This credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those already offering health insurance coverage to maintain the coverage they already have. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with average income of $50,000 or less.
Here is what small employers need to know so they don’t miss out on the credit for tax year 2010:
- Hurricane Irene, Tropical Storm Lee and other recent disaster-related tax relief postponed certain tax filing and payment deadlines to Oct. 31, 2011. Qualifying businesses affected by these natural disasters still have time to file and claim the small employer health care credit on Form 8941 and claim it as part of the general business credit on Form 3800, which they would include with their tax return. For more information on the disaster relief visit IRS.gov.
- Sole proprietors who file Form 1040, Partners and S-corporation shareholders who report their income on Form 1040 and had requested an extension have until Oct. 17 to complete their returns. They would also use Form 8941 to calculate the small employer health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.
- Tax-exempt organizations that file on a calendar year basis and requested an extension to file to Nov. 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.
- Businesses who have already filed can still claim the credit. For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
- Businesses that couldn’t use the credit in 2010 may be eligible to claim it in future years. Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.
For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.
Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.
- Form 8941, Credit for Small Employer Health Insurance Premiums (PDF)
- Form 3800, General Business Credit (PDF)
- Small Business Health Care Tax Credit for Small Employers
IRS Patrol: IRS Provides Help For Small Employers Eligible to Claim the Small Business Health Tax Credit for the 2010 Tax Year.
Help is always nice to get – specially with all the new tax rules out there – and more on the way. I can hardly keep them all straight. If you are wondering if you qualify for this credit read on.
WASHINGTON — The Internal Revenue Service today released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. Today’s release includes a one-page form and instructions small employers will use to claim the credit for the 2010 tax year.
New Form 8941, Credit for Small Employer Health Insurance Premiums, and newly revised Form 990-T are now available on IRS.gov. The IRS also posted on its website the instructions to Form 8941 and Notice 2010-82 , both of which are designed to help small employers correctly figure and claim the credit.
Included in the Affordable Care Act enacted in March, the small business health care tax credit 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 maintain coverage they already have.
The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.
In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
Small businesses 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 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible 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 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.
Eligible small businesses 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.
Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.
- Health Care Tax Credits for Small Businesses Nationwide (whitehouse.gov)
- How Tax Laws Impact a Sole Proprietorship Business (thinkup.waldenu.edu)
- 10 Tax Tips for the Suddenly Unemployed (turbotax.intuit.com)
- Attention Small Employers: New Small Business Health Care Tax Credit Can Help Cut Health Care Costs (eon.businesswire.com)
- How Tax Laws Impact a Sole Proprietorship Business (thinkup.waldenu.edu)
- New report: Employer health insurance premiums increased 41 percent from 2003 to 2009 (eurekalert.org)
- New Report: Affordable Care Act Could Save Families Over $3,000 Per Year (whitehouse.gov)
By Stacie Clifford Kitts, CPA
Well loyal readers, I am finally getting around to outlining the tax aspects of the Small Business Jobs Act. Because I am a visual interactive learner, writing and organizing helps me to retain information. I guess you could say that blogging is like a study technique for me. Too bad it doesn’t qualify for continuing education credit. *sigh* oh well.
Fixed asset expensing – Section 179
- Maximum expense amount $500,000
- Phase out amount $2 million for years 2010 and 2011
Fixed asset bonus depreciation – Section 168(k)
- Extended through 2010
- Percentage of completion method can be taken into account for qualified property
Qualified small business stock – Section 1202
- Increases the gain exclusion from the sale or exchange of qualified small business stock to 100%
- Applies to eligible stock acquired after the enactment date and before Jan 1, 2011
Business credits – Section 38
- Is extended to five years
- Can be used to offset regular and alternative minimum tax
- Tax years beginning after 2009
Built in gains – Section 1374
- Recognition period for computing built in gains tax is the five year period beginning with the first day of the fist tax year for which the corporation was an S Corporation.
Health insurance for self employed individuals
- (This is a particularly good one) For tax years ending after 2009, self employed individuals can deduct health insurance for themselves, their spouses, dependents and children under 27 against net earnings for self-employment for purposes of calculating their SECA taxes ( SECA is equivalent to a workers FICA tax)
Startup expenses – Section 195
- Expenses increased to $10,000 for years beginning in 2010 and 2011
- Limitation on deduction is increased to $60,000
- Calculated by the lessor of 1) the amount of the startup expense or 2) 10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000
Reportable and listed transactions – penalty under section 6707A
- The penalty for failure to disclose a reportable transaction is limited to 75% of the decrease in tax resulting from the transactions.
- Max penalty for a natural person is $10,000
- Penalty for a non-natural person is $50,000 (so like a business or trust or such)
- Listed transactions maximum penalty will be $100,000 for a natural person
- Listed transactions maximum penalty will be $200,000 for non-natural person\
- Minimum penalty
- $5000 Natural person
- $10,000 Non-natural person
Listed property – Section 280A
- no longer includes cell phone.
- Section 179 Changes in the Small Business Jobs and Credit Act of … (i80equipment.com)
- Section179.Org Reports on Section 179 Changes Contained in the The Small Business Jobs and Credit Act of 2010 (prweb.com)
- “The Small Business Jobs Act of 2010” and related posts (washparkprophet.blogspot.com)
- Obama signs the Small Business Jobs Act (mnn.com)
- President Obama Signs Small Business Jobs Act – Learn What’s In It (whitehouse.gov)
- Passage of Small Business Jobs Act a Huge Win (prnewswire.com)
- Brandon Edwards: Small Business Jobs Act: Real Value to Small Manufacturers (huffingtonpost.com)
- NADCO Celebrates the Signing of the Small Business Jobs Act and the SBA 504 Loan Program Enhancements Included (prnewswire.com)
- ICBA Applauds Passage of Small Business Jobs and Credit Act (prweb.com)
- Kristie Arslan: Senate Wakes Up and Pays Attention to Small Business [Commentary] (huffingtonpost.com)