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Small Business Health Care Tax Credit Summary

If you are a small employer and cover the cost of a portion of your employees’ health insurance there is a new credit that you may qualify for.  The following is a summary of the more important points:

ELIGIBILITY

Both taxable and not-for-profit entities qualify for the credit.  Tax-exempt entities will receive a smaller credit though.  The following bullet points cover the points that you’ll need to apply for the credit:

  • You must provide health care and cover at least 50% of the cost of a single rate plan under a qualifying arrangement (amount is capped at the average premium amount for the small group market in the state or area of the state)
  • Your payroll must count less than 25 full-time equivalent workers (owners, partners or family members of such and seasonal workers are generally not counted)
  • The average annual wages of your payroll must be below $50,000

AMOUNT OF CREDIT

  • The credit will be 35% of employer’s health care premium costs incurred during 2010, which gradually increases to 50% in 2014. (25% and 35% for tax-exempt employers).
  • The credit phases out gradually for firms with average wages between $25,000 and $50,000 with full-time equivalent employees between 10 and 25.

The credit will be claimed on the employers annual income tax return, (you must have taxable income unless your organization is tax-exempt).  If you cannot use the entire credit, it will be carried forward to future years.

Those are the basics.  As with most things, more details will follow as people begin applying the rules.

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