(March 7, 2012) As the March 15 corporate tax filing deadline approaches, the California Chamber of Commerce is reminding small businesses to take advantage of the small business health care tax credit. The tax credit is part of the federal 2010 Affordable Care Act.
California small businesses can review the Internal Revenue Service (IRS) guidelines to determine eligibility for the tax credit on the new business-oriented website, www.healthlawguideforbusiness.org.
The website offers a “tax credit calculator” that helps employers estimate savings available under the law.
About the Credit
The small business health care tax credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. According to the IRS, small employers that pay at least half of the premium for employee health insurance coverage may be eligible for the small business health care tax credit. Small tax-exempt organizations also may qualify.
The IRS reports that since April 2010, it has sent millions of postcards to small employers to let them know about the new small business health care tax credit and encourage them to check their eligibility. Even a business that didn't receive a postcard still may be eligible.
The credit is worth up to 35% of a small business's premium costs (25% for tax-exempt employers). In 2014, this rate increases to 50% (35% for tax-exempt employers).
To qualify, an employer must have fewer than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible). A qualifying employer also must pay average annual wages below $50,000.
The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
To determine if they qualify, businesses may use this three-step fact sheet from the IRS. Eligible small employers will use Form 8941 to calculate the credit.
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.