IRS guidelines for Small Business Health Care Tax Credit

IRS released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. The credit is generally available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For the first three years, the maximum credit is 35% of premiums paid by eligible small businesses and 25% of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum credit will increase to 50% of premiums paid by eligible small business employers and 35% for 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 who 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 tax return.

FTE is calculated by taking total hours worked by all employees (whether they received benefits or not) for the year and dividing by the total number of employees.

Annual average wages is calculated by taking total wages/salary expense for all employees (whether they receive benefits or not) by the FTE.



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Scams targeting Small Businesses

My brother sent me an email last week informing me that he had met with a firm that professes to do profitability and tax savings assessments on small companies and promised to save his company $100K the first year. My brother was wise enough to bring his tax accountant with him to the meeting and when the representative could not or would not provide any details as to how they could save the business $100K, they sent the company packing. They later found out the company has over 300 complaints filed against them with the local Better Business Bureau office.


I am on the advisory board for our local BBB office and at our last meeting, heard a story about a business in our area scammed by a firm promising to write them a business plan and set the company up a foundation which would make them eligible for thousands of dollars in government grants. The company paid $8K in fees which got them a cookie cutter business plan and no grant money.

The moral to these stories is buyer beware. There are more and more unscrupulous businesses and individuals looking to take advantage of a small business owner’s desperation. Before you sign any contract or send any money to a company promising to reduce your taxes or help you get grant or loan money, have your attorney or another trusted advisor look things over. If your cash flow is tight, the last thing you want to do is waste money in a scam.