By Andrew S. Lattimer
One area where we have been advising some of our small business clients to explore this year for potential savings is a new Small Business Health Care Tax Credit, made possible by the new federal Affordable Care Act.
For those who haven’t done so yet, small business owners still have until Oct. 17 to file for this tax credit, one that could mean substantial savings for those companies that meet the qualifications and provided health care insurance to its employees in 2010.
This new credit is for up to 35% of the health insurance premium costs that a for-profit small business incurred for insuring its employees in 2010, and it will increase to 50 percent by 2014. For tax-exempt (not-for-profit) business, the credit is for 25percent, increasing to 35 percent by 2014.
At a time when small businesses continue to struggle in an uncertain economy and marketplace, this could bring some welcome news for this year’s tax returns.
In order to qualify, a business must:
• Have 25 or fewer full-time employees on the payroll earning an average annual salary of $50,000 or less (or the accounting equivalent, meaning a business with up to 50 half-time workers all earning less than $25,000 would qualify), and;
• Provide health care coverage for its workers, and must contribute at least 50 percent of the cost of the employee coverage;
What’s more, for those eligible small businesses that do not yet provide insurance, if they do start providing coverage in the future, the credit can be claimed for 2011 and beyond. Additionally, small businesses that have already filed without claiming the credit can still do so — they simply need to amend their returns using Form 1120X for corporations or Form 1040X for other small businesses. Those eligible tax-exempt organizations should claim the credit on Form 990-T.
Again, many small businesses have struggled during these past two years of economic uncertainty, and escalating healthcare costs have, without a question, been one of the reasons for those struggles. While this Affordable Care Act Small Business Health Care Tax Credit is not necessarily a cure-all for these businesses, it certainly can help these owners to keep more of their hard earned money in their pockets, both this year and well into the future.
Those in need of more information regarding this significant new credit should contact a tax professional to ask about it, and can also find valuable information on the Internal Revenue Service’s website at http://www.irs.gov/newsroom/article/0,,id=220809,00.html.
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Andrew S. Lattimer is a CPA and a partner with BlumShapiro, the largest regional accounting, tax and business consulting firm based in New England, with offices in West Hartford and Shelton as well as in Rockland, Mass. Reach him through the firm’s website at blumshapiro.com.