IRS Pushing Health Insurance Credit

by Mike Godfrey, Tax-News.com, Washington

09 April 2010

The US Internal Revenue Service (IRS) has launched a new push with regard to small businesses that provide health insurance coverage to their employees, reminding them that under President Obama's recent healthcare reforms, they now qualify for a special tax credit.

Included in the Patient Protection and Affordable Care Act, approved by Congress and signed by the President on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

IRS Commissioner Doug Shulman explained that:

“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees. We urge small businesses and tax-exempt employers to look closely at this important tax break — which is already effective — to see if they qualify.”

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than USD50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.

The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of USD25,000 or less.

The maximum credit is 35% of premiums paid in 2010 by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit will increase to 50% of premiums paid by eligible small business employers and 35% of premiums paid by tax-exempt organizations.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. Further information on how to claim the credit will be forthcoming shortly for tax-exempt employers, the IRS stated recently.

The IRS has revealed that it will use a postcard campaign to reach out to millions of small businesses that may qualify for the credit.

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