Health Care Reform: Health Care Tax Credit

In April you probably received a postcard from the IRS announcing the Small Business Health Care Tax Credit. Whether you have a taxable (for-profit) firm or tax-exempt firm, you may be eligible for the tax credit if you meet all three of the following criteria:
Owners and family members are not counted.

1. Your firm must cover at least 50 percent of the cost of healthcare coverage for the single employee rate.

2. Your firm must have less than the equivalent of 25 full-time workers.

3. Your firm must pay average annual wages of less than $50,000.

Your credit is worth up to 35 percent of your premium costs in 2010 and will increase to 50 percent in 2014. The credit is less for tax-exempt employers. The credit phases out for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time employees.

Both small businesses and tax-exempt organizations will use the new Form 8941 to calculate the small business health care tax credit. Small businesses will include the amount of the credit as part of the general business credit on its income tax return. Tax-exempt organizations will claim the credit on a Form 990-T which will be revised for the 2011 filing.