The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is the Impact of More than Ten Full-time Equivalent Employees and Average Annual Wages Greater than $25,000.

Employers with ten or fewer full-time equivalent employees (FTEs) do not need to reduce their credit due to the number of FTEs and employers with average annual wages of $25,000 or less do not need to reduce their credit due to the average annual wage. For employers more than ten FTEs and with average annual wages greater than $25,000, the reduction is determined by calculating the individual reductions and adding them together to get the total reduction. If an employer has 13 employees with average annual wages of $33,000 and a credit before reduction of $50,000, then the credit reduction would be $24,000. The steps are as follows:

1. Calculate FTE reduction = $10,000
2. Calculate excess wages reduction = $16,000
3. Sum the reductions $10,000 + $16,000 = $26,000

The allowable credit would be $50,000 – $26,000 = $24,000.

The next topic to be covered in this series is the Timing of Payments to be Counted in Calculating the Small Business Health Care Tax Credit. Contact Vision Payroll if you have further questions on the Impact of More than Ten Full-time Equivalent Employees and Average Annual Wages Greater than $25,000.