Tax Officials Distribute Small Business Health Credit Guidance

An IRS announcement said the tax agency release includes a one-page form and instructions small employers will use to claim the credit.

Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have, the IRS said

The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

According to the IRS, the credit is generally available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. The tax agency said the credit is targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Tax Credit Timing 

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small businesses and 25% of premiums paid by eligible tax-exempt organizations, according to the IRS. Beginning in 2014, the maximum tax credit will increase to 50% of premiums paid by eligible small business employers and 35% of premiums paid by 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 that have 25 or more FTEs or that pay average wages of $50,000 or more per year.

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 income tax return.

The IRS said tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

For More Information  

More information about the credit, including a step-by-step guide to claiming the credit is at  http://www.irs.gov/newsroom/article/0,,id=220839,00.html.

New Form 8941 Credit for Small Employer Health Insurance Premiums is at http://www.irs.gov/pub/irs-pdf/f8941.pdf and newly revised Form 990T is at  http://www.irs.gov/pub/irs-dft/f990t--dft.pdf.

The IRS also posted on its website the instructions to Form 8941  (http://www.irs.gov/pub/irs-pdf/i8941.pdf) and Notice 2010-82 (http://www.irs.gov/pub/irs-drop/n-10-82.pdf).