Tax Update: Small Employer Health Care Creditby Michelle Bomberger | January 10, 2012
Our guest blogger this week is Mary Marino, Partner at Clifton Larson Allen. Mary’s practice specializes in planning and compliance for closely-held businesses and their owners. Mary will also be our guest presenter at our upcoming Equinox Focus Event on January 25.
There is a potentially lucrative tax credit that applies for the six year period beginning in 2010 and ending in 2015. The Small Employer Health Care Credit provides a federal subsidy of up to 35% of employee health insurance premiums paid by a for-profit business, and up to 25% for a non-profit employer. In general terms, you are eligible for this credit if you meet three criteria:
– You have under 25 full-time equivalent (FTE) employees, excluding owners, their family members and seasonal employees
– Your average payroll per employee for the year is under $50,000, again excluding owners, their family members and seasonal employees
– The employer-paid portion of employee health insurance is at least 50% of the premium (whether the employee has single or family health insurance coverage)
The good news is that this credit can be lucrative. An employer with eight employees and paying $40,000 of health insurance premiums could qualify for a $14,000 tax credit ($40,000 x 35%). For a non-profit employer, that credit would be $10,000 ($40,000 x 25%). The bad news, however, is that there are complicated phase-outs and only the smallest employers (those under 10 FTEs and under $25,000 of average annual wages) will get the maximum credit.
If there is any chance that your FTE computation may be under 25 employees and also average wages may be under $50,000, you should investigate this credit further. There are computation alternatives can may qualify you for at least a partial tax credit. Further, after analyzing your numbers, there may be strategies to improve the credit in future years.