Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees now qualify for a special tax credit, according to the Internal Revenue Service.
Included in the Patient Protection and Affordable Care Act, which was approved by Congress and signed by President Barack Obama on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In general, the credit is available to small employers who pay at least half the cost of single coverage for their employees.
The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers who are tax-exempt organizations. In 2014, the maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers who are tax-exempt organizations.
The credit is targeted to help small businesses and tax-exempt organizations who primarily employ low- and moderate-income workers and is generally available to employers who have fewer than 25 full-time equivalent (FTE) employees and pay wages averaging less than $50,000 per employee per year.
Because the eligibility formula is based in part on the number of FTEs, not the number of employees, the IRS says many businesses will qualify even if they employ more than 25 workers.
The maximum credit goes to smaller employers – those with 10 or fewer FTEs – who pay annual average wages of $25,000 or less.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS plans to provide further information on how to claim the credit.