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PLEASE NOTE: The following pages are designed to provide a general overview of the new health reform law. It does NOT attempt to cover all of the
law’s provisions and should NOT be used as legal advice for implementation activities. GCG and SLSF recommend that you consult with your tax or legal
advisor regarding how the new requirements will affect your specific plan.
In conformity with U.S. Treasury Department Circular 230 tax advice contained in this communication and any attachments is not intended to be used, and
cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code, nor may any such tax advice be used to
promote, market or recommend to any person any transaction or matter that is the subject of this communication and any attachments.
HEALTHCARE TAX CREDIT
2010
Marcus Newman, CBCGCG Financial
Bradley Greenberg, CPASLSF
Silver Lerner Schwartz & Fertel
Certified Public Accountants
www.slsf.com
Under the Patient Protection and Affordable Care Act small businesses that choose to provide health insurance could be eligible for a tax credit based on their cost of health insurance.
Source: IRS.gov
―This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,‖ said IRS Commissioner Doug Shulman. ―We urge small businesses and tax-exempt employers to look closely at this important tax break — which is already effective — to see if they qualify.‖
Doug Shulman, IRS Commissioner (pictured above)
Source: IRS.gov
Small employers who contribute at least 50% of the cost of premiums (or 50% of a benchmark premium).
It is generally available to employers that have fewer than 25 full-time equivalent (FTE).
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.
Eligible business will be paying wages averaging less than $50,000 per employee per year.
Source: IRS.gov
The number of an employer’s FTEs is determined by dividing (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080.
The result, if not a whole number, is then rounded to the next lowest whole number.
DON’T COUNT: seasonal workers, self –employed individuals, 2% shareholders of s-corporations, 5% owners of a small business, or partners of a partnership and family members of owners.
Source: IRS.gov
For the 2010 tax year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours.
The employer’s FTEs would be calculated as follows:(1) Total hours not exceeding 2,080 per employee is the sum of:
◦ a. 10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080)
◦ b. 3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040)
◦ c. 2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)These add up to 15,600 hours(2) FTEs: 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number)
Source: IRS.gov
Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer on more than 120 days during the tax year.
Source: IRS.gov
The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer to employees during the employer’s tax year by (2) the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000).
For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation).
DON’T COUNT: seasonal workers, self –employed individuals, 2% shareholders of s-corporations, 5% owners of a small business, or partners of a partnership and family members of owners.
Source: IRS.gov
For the 2010 tax year, an employer pays $224,000 in wages and has 10 FTEs. The employer’s average annual wages would be:
$22,000 - ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000)
Source: IRS.gov
The maximum credit goes to smaller employers.
Those with 10 or fewer
FTEs and paying annual
average wages of $25,000 or less will receive the full 35% credit.
**50% credit in 2014 – 2015(Additional qualifications apply)
Source: IRS.gov
35%FTE’s
AAW
Dental Insurance
Vision Insurance
Group Long Term Care Plans
Medicare Supplemental Insurance Plans
Source: IRS.gov
The premiums taken into account for the purposes of the tax credit are the
lesser of:
%age (min. 50%) of the premiums paid, or %age using the ―benchmark‖ premium for the state
your company is in.
SPECIAL TRANSITION RULE FOR 2010 APPLIES
Source: IRS.gov
State Employee Family
Alaska 6,204 13,723
Alabama 4,441 11,275
Arkansas 4,329 9,677
Arizona 4,495 10,239
California 4,628 10,957
Colorado 4,972 11,437
Connecticut 5,419 13,484
D.C. 5,355 12,823
Delaware 5,602 12,513
Florida 5,161 12,453
Georgia 4,612 10,598
Hawaii 4,228 10,508
Iowa 4,652 10,503
Idaho 4,215 9,365
Illinois 5,198 12,309
Indiana 4,775 11,222
Kansas 4,603 11,462
Kentucky 4,287 10,434
Louisiana 4,829 11,074
Mass 5,700 14,138
Maryland 4,837 11,939
State Employee Family
Maine 5,215 11,887
Michigan 5,098 12,364
Minnesota 4,704 11,938
Missouri 4,663 10,681
Mississippi 4,533 10,501
Montana 4,772 10,212
North Car 4,920 11,583
North Dakota 4,469 10,506
Nebraska 4,715 11,169
New Hamp 5,519 13,624
New Jersey 5,607 13,521
New Mexico 4,754 11,404
Nevada 4,553 10,297
New York 5,442 12,867
Ohio 4,667 11,293
Oklahoma 4,838 11,002
Oregon 4,681 10,890
Pennsylvania 5,039 12,471
Rhode Island 5,887 13,786
South Car 4,899 11,780
South Dakota 4,497 11,483
Tennessee 4,611 10,369
Texas 5,140 11,972
State Employee Family
Utah 4,238 10,935
Virginia 4,890 11,338
Vermont 5,244 11,748
Washington 4,543 10,725
Wisconsin 5,222 12,819
West Virginia 4,986 11,611
Wyoming 5,266 12,163
Source: IRS.gov
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011 for health insurance premium payments made after 12-31-09.
For tax-exempt employers, the IRS will provide further information on how to claim the
credit.
Source: IRS.gov
Catherine CliffordCNN Money . Com
April15, 2010
…In a rough economy, every dollar saved is vital. "It might
not match what [health care costs] increase in a year ---
but wow, that is sure helpful," Phelps of Oakbrook Esser
Studios said of the tax break. "It helps take that total
burden off the company."….
…The White House estimates up to 4 million small businesses may qualify for the tax credit, but it's not clear how many will be eligible.....
The TAX CREDIT is in the News!
Associated PressFOX News . comMay 17, 2010
Determine Calculate Verify
Source: IRS.gov
Determine the total number of your employees (not counting owners, family members or seasonal employees):
Full-time employees:
(enter the number of employees who work 40 hours each week or more)
Full-time equivalent (of part-time) people:
(divide the total annual number of part-time hours worked by 2080)
If these numbers add up to 25 or less then go on to the next step.
Source: IRS.gov
Calculate the average annual wages of employees (not counting
owners, family members or seasonal employees):
Take the total annual wages paid to employees:
Then divide it by the number of FTE determined in STEP 1:
This number is your average annual wage (AAW):
If the result is less than $50,000 then go to the next step.
Source: IRS.gov
You must be paying at least 50% of the health insurance premium cost for your single employees in order to be eligible for the CREDIT.
If you believe you are eligible for the TAX CREDIT contact your accountant to determine the amount.
Source: IRS.gov
Example:
Calculating the credit phase-out if the number of FTEs exceeds 10 or average annual wages exceeds $25,000.
For the 2010 taxable year, a taxable eligible small employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health insurance premiums for its employees (which does not exceed the ―benchmark‖ premium in the employer’s state) and otherwise meets the requirements for the credit.
The initial amount of the credit determined before any reduction is $33,600 ($96,000 x 35%)
Credit reductions for FTEs (12) in excess of 10 is equal to $4,480 ($33,600 x 2/15)
The Credit reduction for average annual wages in excess of $25,000 is equal to $6,720 ($33,600 x $5000/$25000)
Total credit reduction is equal to $11,200 ($4,480 + $6,720)
The total 2010 tax credit equals $22,400 ($33,600 - $11,200)
It will be claimed on the EMPLOYER’s annual income tax return.
It CANNOT be used against employment taxes.
NON-REFUNDABLE Credit
◦ But, it can be rolled over to following years’ tax returns (back 1 and forward 20)
The amount of premium that can be deducted is reduced by the amount of the TAX CREDIT
PLEASE NOTE: The preceding pages are designed to provide a general overview of the new health reform law. It does NOT attempt to cover all of
the law’s provisions and should NOT be used as legal advice for implementation activities. GCG and SLSF recommend that you consult with your tax
or legal advisor regarding how the new requirements will affect your specific plan.
In conformity with U.S. Treasury Department Circular 230 tax advice contained in this communication and any attachments is not intended to be used,
and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code, nor may any such tax advice be used
to promote, market or recommend to any person any transaction or matter that is the subject of this communication and any attachments.
INFORMATIONAL LINKS
www.irs.gov
Tax Credit Articlewww.irs.gov/newsroom/article/0,,id=220848,00.html
Tax Credit FAQ’swww.irs.gov/newsroom/article0,,id=220839,00.html
Revenue Notice 2010-44 (from 5/17/2010)www.irs.gov/pub/irs-drop/n-10-44.pdf
Bradley Greenberg, CPA
SLSF
Direct: 847.779.6206
Marcus Newman, CBC
GCG Financial
Direct: 847.457.3058
Silver Lerner Schwartz & Fertel
Certified Public Accountants
www.slsf.com
Thank you for your time!
Brought to you by the Accounting Firm of:
In conjunction with our friends at
GCG Financial, Inc.Employee Benefits
Consultants
HEALTHCARE
TAX CREDIT
Silver Lerner Schwartz & Fertel
Certified Public Accountants
www.slsf.com
