IRS Lays Groundwork for Tax Credit For Health Insurance

Insuring Resources Commentary:

The rule development regarding the small business tax credit may ultimately be decided at the Supreme Court, rather than in a good dialogue between business interests and HHS, Labor, the IRS and others that implement and then ultimately enforce them. Check back often for more details on the impact of these rules as they are developed and implemented and their effect on small business interests and consumers. This is only the beginning and I will stay on top of this.....because,

the details are obviously lacking at this poin. Particularly, I wonder about small, professional oriented businesses who have less than 50 employees but have an average wage of more than $50,000. This appears to be a problem for small Arcitecture firms, law firms, dental and physician practices and fledgling health insurance consultants.


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May 17, 2010 |
By ALLISON BELL - National Underwriter


The Internal Revenue Service has come out with guidelines for small commercial and nonprofit employers that want to take advantage of a new health insurance tax break.
The small employer health insurance tax credit guidelines, given in IRS Notice 2010-44, include examples that can help employers and their benefits advisors determine whether the employers are eligible for the tax break, and exactly how much of the new federal health insurance tax credit the employers can claim.

Calculating exactly how small an employer is for tax credit purposes will depend partly on the definition of “full-time equivalent” employee, officials write in the notice.

“In general, employees who perform services for the employer during the taxable year are taken into account in determining the employer’s FTEs, average wages, and premiums paid,” officials write.

But “partners in a business and certain owners are not taken into account as employees,” officials write. “Specifically, sole proprietors, partners in a partnership, shareholders owning more than 2% of an S corporation.

Owners and partners need not count family members or other dependents who are members of their households as employees when they are trying to qualify for the tax credit.

Season workers count toward the FTE total only if they work for an employer on more than 120 days during the taxable year.

IRS officials devote another section to computing workers’ hours.

The IRS issued the notice to implement a new tax law, Section 45R of the Internal Revenue Code, which was added by Section 1421 of the new Patient Protection and Affordable Care Act.

PPACA and a companion act, the Health Care and Education Reconciliation Act, are part of what federal agencies have dubbed the Affordable Care Act.

This year, the new ACA small business tax break will offer small employers a tax credit equal to at least half the cost of single coverage, if the employees earn average wages of less than $50,000 per year.

The tax credit is not available to ordinary government employers, but it is available to small businesses, small tax-exempt employers, and government-affiliated tax-exempt employers that can be described as section 501(c) organizations.

“For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations,” officials write in a summary of the notice.

Employers with 10 or fewer FTE employees that pay annual average wages of $25,000 or less can qualify for the maximum credit.

Employers with 10 to 25 FTE employees that pay annual wages of $50,000 or less can qualify for a smaller tax credit.










WASHINGTON -- Pitching President Barack Obama's health care law to skeptical business owners, the IRS on Monday will announce ground rules for small firms wishing to claim a new federal tax credit for health insurance.

Created under the health overhaul law, the tax credit covers up to 35 percent of the premiums that certain small businesses pay on behalf of their workers. The IRS notice addresses unanswered questions about the benefit, which is available starting this year.

The agency's action comes days after the nation's largest small business lobbying group announced it was joining a lawsuit challenging the health care law. The National Federation of Independent Business argues that Congress overstepped its constitutional authority by imposing a requirement that most Americans obtain health insurance either through an employer, a government program or buying it directly.

The IRS notice clarifies that employers can apply the credit toward dental and vision benefits, not just medical coverage. A fact sheet released by the Treasury Department also says that employers can claim the federal benefit even if they receive state tax credits for their insurance premiums.

The White House estimates up to 4 million small businesses may qualify for the tax credit, but it's not clear how many will be eligible. To begin with, they have to provide health insurance _ and many small employers don't. To qualify, companies must pay at least 50 percent of their workers' premiums.

Eligibility is also limited by company size and wages. A firm has to have fewer than 25 full-time workers averaging less than $50,000 a year in pay.