This week’s question comes from Franz, a small-business owner. We provide health insurance for our employees. We heard that we can get a credit on our tax return this year. What is the Small Business Health Care Tax Credit? Answer: the Small Business Health Care Tax Credit takes effect in 2010 and is available to many small businesses and tax-exempt employers. To determine if your business or tax-exempt organization qualifies, follow these steps:
- Determine the number of employees who work at least forty hours per week, but don’t count owners or family members. These employees are considered full-time employees.
- Determine the number of full-time equivalent employees by dividing the total number of hours worked by employees who work less than forty hours per week by 2080. Again, do not count owners or family members.
- Calculate the sum of the numbers calculated in steps 1 and 2. If the sum is less than twenty-five, continue to step 4. If the sum is twenty-five or more, stop. Your business does not qualify for the credit.
- Divide the total annual wages paid to the employees counted in steps 1 and 2 by the sum calculated in step 3. If the quotient is less than $50,000, continue to step 5. If the quotient is $50,000 or more, stop. Your business does not qualify for the credit.
- Determine if your business pays at least half of the insurance premiums for your employees at the single (employee-only) coverage rate. If you do, your business may qualify for the credit. If you don’t, stop. Your business does not qualify for the credit.
Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. These details will help employers more accurately determine qualifying employers and average annual wages and also calculate and claim the credit.