The IRS has issued guidance to help small business owners cope with new requirements in the monumental health care legislation. (IR-2010-38)
Under the new health care law, a small business is eligible for credit for contributions used to purchase health insurance for its employees. To qualify, the business can’t have more than 25 full-time employees with average annual wages above $50,000. The contributions must be made under an arrangement requiring the employer to make nonelective contributions to health insurance offered to enrolled employees equal to at least 50% of the premium cost.
Beginning in 2010, a small business can claim a credit equal to 35% of the cost of its qualified employer contributions. In 2014, the credit increases to 50% of the contributions if the employer participates in a state-run insurance exchange.
Even better: If a small business employs 10 or fewer full-time employees with average annual wages of no more than $25,000, it can claim a 100% credit. The credit percentage phases out, but not below zero, if the employer exceeds either of these two limits.
The new guidance clarifies that this calculation doesn’t include sole proprietors, partners in a partnership, more-than-2% shareholders in an S corporation and individuals owning more than 5% of another business. Family members of these individuals are also excluded.
The new health care credit is available to eligible small businesses in 2010. If you have questions regarding the new health care credit, do not hesitate to contact our office. We can provide the assistance you need and determine whether you qualify.