Three Things a Business Owner Needs to Calculate their Tax Credit for Health Care Premiums

The recent health care reform has allowed eligible businesses to claim a credit for premiums paid for health insurance. For 2010, the maximum credit is 35% of the employer’s premium.

An eligible business is one that:

  • Has the equivalent of fewer than 25 full-time employees.
  • Has average annual wages of less than $50,000.
  • Contributes at least 50% of the premium cost of a qualifying health plan offered to employees, based on the single (employee only) rate.

The IRS has recently issued a draft of Form 8941, Credit for Small Employer Health Insurance Premiums.  To complete this form, employers will need to know:

  • The equivalent amount of full-time employees they have.  Generally, this is determined by dividing the total hours for which wages were paid for all eligible employees during the year by 2,080.
  • A calculation of average annual wages, taking the total wages paid during the year, and dividing by the number of full-time employees.
  • The percent of health insurance premiums paid by the employer and employee.

The credit phases out for employers with average wages between $25,000 and $50,000 and for employers with the equivalent of between 10 and 25 full-time workers.  The credit is then included as part of the general tax credit on its income tax return.

ACTION ITEM:  Employers that think they might be eligible for this credit should begin to start gathering the information now to help make the filing of the returns easier next year.

Thomas F. Scanlon, CPA, CFP®

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