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The IRS has released a draft form to be used by small businesses and nonprofits to calculate the tax credit for small business health care. The form will be used when organizations file their income tax returns in 2011.
The Affordable Care Act, that went into effect in March, provides for a tax credit for small businesses as an incentive to provide or maintain health care coverage.
Nonprofits and small businesses will use this form when calculating their tax credit. This credit will be included as part of the general business credit on tax returns.
Form 990-T will be updated for the filing season of 2011 and used by nonprofit organizations for the health care tax credit.
For the year 2010, the tax credit is provided for small businesses that cover at least 50% of the health care cost for their employees. This credit targets nonprofits and small businesses that employ lower income workers.
The credit changes for tax years 2010-2013. A credit of up to 35% of health care premium costs will be available for small business owners and 25% of health care premium costs for nonprofit organizations. Starting in 2014, a maximum credit of 50% of health care premium costs for small business owners and 35% of health care premium costs by nonprofit organizations will be available. Small businesses are those who have 10 or less FTEs who pay wages averaging $25,000 or less.
The credit will be phased out for businesses with 25 FTEs or that pay average wages that are more than $50,000. Since eligibility is based on FTE’s, employers who employ part-time workers may qualify for more than 25 employees.
These tax credits could be welcomed relief for struggling small businesses and nonprofits that provide health care benefits for their employees.
These tax credits could be welcomed relief for struggling small businesses and nonprofits that provide health care benefits for their employees.
