IRS Releases Form for Calculating New Health Care Tax Credit

September 7, 2010 ( - The Internal Revenue Service has released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year.

The IRS has posted a draft of Form 8941 on its Web site.

According to an IRS announcement, a small business will then include the amount of the credit as part of the general business credit on its income tax return, while tax-exempt organizations will claim the small business health care tax credit on a revised Form 990-T. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– to claim the small business health care tax credit.   

The final version of Form 8941 and its instructions will be available later this year.   

The agency explained in its announcement that in 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees.  

For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible, tax-exempt organizations for two years.    

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 FTEs or more or that pay average wages of $50,000 per year or more. 

Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.   

More information is here.