The IRS has just issued preliminary guidelines on the health insurance tax credit for small businesses – and it looks good. This will make the cost of health insurance more affordable for many small employers. Of major importance is that the owner’s wages/salary are not included in the average wage calculation when determining one’s eligibility to qualify for the credit. (See answer to questions 13 & 14 in the IRS FAQ.)
Businesses with fewer than 10 employees whose average wages are $25,000/yr. or less will qualify for the full credit. The medical insurance tax credit gradually reduces but is available to employers with fewer than 25 employees and average wages that are less than $50,000/yr.
The maximum credit amount is 35% of the health insurance premiums paid by employer in 2010. This version of the small employer health insurance credit will be available for tax years 2010 – 2013. According to the IRS, “an enhanced version of the credit will be effective beginning in 2014. ”
Tax-exempt employers can also qualify for a “refundable” credit that is equal to 25% of the health insurance premium paid by the employer and capped by the maximum “amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.” (See the answer to question #6 on the IRS FAQ.)
As with all things tax related – the explanations are a bit confusing and require one to read slowly, re-read, then seek professional guidance. The IRS will be releasing more information by the end of April and we will keep you posted. We don’t give tax advice at BenefitsCafe.com (we’re health insurance agents) but we will try to find out as much as we can about this valuable tax credit. We’re happy to share what we learn.
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