Vision Payroll

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.

Employers with ten or fewer full-time equivalent employees (FTEs) do not need to reduce their credit due to the number of FTEs. For employers with more than ten FTEs, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If an employer has 13 employees with average annual wages of $24,000 and a credit before reduction of $50,000, then the credit reduction would be $10,000. The steps are as follows:

1. Calculate excess employees 13 – 10 = 3.
2. Calculate fraction 3 ÷ 15 = 20%.
3. Multiply fraction by credit amount before reduction $50,000 X 20% = $10,000.

The allowable credit would be $50,000 – $10,000 = $40,000.

The next topic to be covered in this series is the Impact of Average Annual Wages Greater than $25,000. Contact Vision Payroll if you have further questions on the Impact of More than Ten Full-time Equivalent Employees.

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 Maximum Credit for Tax-Exempt Qualified Employers.

For taxable years beginning in 2010 through 2013, the maximum credit is 25% of the Expenses Counted in Calculating the Health Care Credit. There is a further limitation equal to the amount of certain taxes that the qualified tax-exempt employer must pay with Form 941. The taxes are the sum of the federal income and Medicare taxes withheld and the employer portion of the Medicare tax.

If a qualified tax-exempt employer has eight employees who earn an average of $24,500 per year and the employer pays $90,000 in qualifying health care premiums, the maximum credit would be $90,000 X 25% = $22,500. This assumes that the qualifying health care premiums do not exceed the average premium for a small group market plan for the state or area of the state where the employer offers coverage. If the total federal income and Medicare taxes withheld and the employer portion of the Medicare tax, are greater than $22,500, the credit is $22,500. But if the federal income and Medicare taxes withheld and the employer portion of the Medicare tax are only $20,000, the credit must be limited to $20,000.

The next topic to be covered in this series is the Impact of More than Ten Full-time Equivalent Employees. Contact Vision Payroll if you have further questions on the Maximum Credit for Tax-Exempt Qualified Employers.

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 Maximum Credit for Qualified Employers other than Tax-Exempt Employers.

For taxable years beginning in 2010 through 2013, the maximum credit is 35% of the Expenses Counted in Calculating the Health Care Credit. If an employer has eight employees who earn an average of $24,500 per year and the employer pays $90,000 in qualifying health care premiums, the maximum credit would be $90,000 X 35% = $31,500. This assumes that the qualifying health care premiums do not exceed the average premium for a small group market plan for the state or area of the state where the employer offers coverage.

The next topic to be covered in this series is the Maximum Credit for Tax-Exempt Qualified Employers. Contact Vision Payroll if you have further questions on the Maximum Credit for Qualified Employers other than Tax-Exempt Employers.

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 Expenses Counted in Calculating the Health Care Credit.

Employers must make a nonelective contribution on behalf of each employee participating in a qualified health plan. The percentage contributed on behalf of each employee must be uniform for all employees and must not be less than 50% of the cost of the coverage. If the portion paid by the employer is less than 100%, only the portion paid by the employer counts toward the credit. For example, if a monthly premium is $1,000 and the employer pays $700 or 70%, only the $700 counts toward the credit. This is true even if the employee’s portion is treated as paid by the employer through a salary reduction arrangement under §125 of the Internal Revenue Code of 1986.

Furthermore, an additional cap is imposed that limits the portion eligible for the credit to the amount that would have been paid if the employer had been enrolled in a plan that charges the average premium for a small group market plan for the state or area of the state where the employer offers coverage. The average premium and the state or area of the state to which it applies will be determined by the Secretary of Health and Human Services.

The next topic to be covered in this series is the Maximum Credit for Qualified Employers other than Tax-Exempt Employers. Contact Vision Payroll if you have further questions on Expenses Counted in Calculating the Health Care Credit.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.