What Employers Need to Know About Claiming the Small Business Health Care Tax Credit

The Internal Revenue Service is reminding small businesses that they may be eligible for the Tax Health Care Credit that was enacted last year. The IRS is reaching out to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently-enacted small business health care tax credit. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2011. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers. "We want to make sure small employers across the nation realize that - effective this tax year - they may be eligible for a valuable new tax credit. Our postcard mailing - which is targeted at small employers - is intended to get the attention of small employers and encourage them to find out more," IRS Commissioner Doug Shulman said. "We urge every small employer to take advantage of this credit if they qualify." Eligibility Rules:

  • Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage. A qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.

Here is what small employers need to know so they don't miss out on the credit for tax year 2011:

  • Tax-exempt organizations that file on a calendar year basis and requested an extension to file to November 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.
  • Businesses who have already filed can still claim the credit. For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2011 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
  • Businesses that couldn't use the credit in 2011 may be eligible to claim it in future years. Some businesses that already locked into health insurance plan structures and contributions for 2011 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2011. So these businesses may be eligible to claim the credit on 2012 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

More information is available at the www.irs.gov
If you have any questions regarding the Small Business Health Care Tax Credit and how to take advantage of the program, you can call and speak to one of our attorneys at (916) 488-8501.

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