The Patient Protection and Affordable Care Act which became law in March 2010 includes a tax credit to encourage small employers to offer health insurance for the first time or maintain coverage they already have. The credit is available to small businesses that pay at least half the cost of single coverage for their employees.
How Much is the Credit?
Beginning in 2010, the maximum credit is 35 percent of annual premiums by eligible small business employers. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers.
How Does My Business Qualify?
The tax credit is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying 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, many businesses will qualify even if they employ more than 25 individual workers. Read this article to apply the three-step formula to see if your business qualifies for the tax credit.
The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.
How Do I Receive This Tax Credit?
You can claim the credit when you file your 2010 business tax return in 2011.
Will the IRS tell me if I am eligible?
The IRS will use postcards to reach out to millions of small businesses that may qualify for the credit. The postcards will encourage small business owners to take advantage of the credit if they qualify. If you receive the postcard, it doesn't mean you qualify; you should still do the calculation.
