Our Clients Ask Us: Tax Credits

Q: Are there any tax credits that my business should consider when completing its tax returns this year?

Answer:

Yes. Your company should consider the Small Business Health Care Tax Credit. This credit is available to small employers that pay at least 50 percent of the premiums for single health insurance coverage for their employees. It is aimed to help small businesses and tax-exempt organizations that primarily employ moderate and lower income workers afford the cost of covering their employees.

In order to qualify for the credit, your company must cover at least half of the cost of health care coverage for some of its workers based on the single rate. Second, it must have less than the equivalent of 25 full-time workers for the tax year. Lastly, it must pay average annual wages below $50,000 per full time employee.

For the 2010 through 2013 tax years, the maximum credit is 35 percent of premiums paid by eligible small businesses (25 percent for tax-exempt employers). On January 1, 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers (35 percent for tax-exempt employers).

The credit is phased out gradually for employers that have average wages between $25,000 and $50,000 and for employers that have the equivalent of between 10 to 25 full-time workers.

If your company is an eligible small business it should use Form 8941 to calculate the credit and then include the credit amount as part of the general business credit on its income tax return.

Tax-exempt employers should include the amount of the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return.

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