Employee Benefits Compliance, Small Employers, Taxes, Fees & Penalties

2010 Small Business Health Care Tax Credit: Still Time to File if You are an Eligible Employer!

Small businesses that:
  • Have up to 25 employees,
  • Pay average annual wages below $50,000, and
  • Provide health insurance for employees
may qualify for a small business tax credit of up to 35% of the employer contribution toward the premium for employee health insurance (up to 25% for non-profits).
The IRS and HHS posted notices Sept. 7, 2011 to remind small employers that it’s not too late to file (Form 8941) for the 2010 tax credit. The two federal agencies have a multi-media outreach effort to spread the word, via emails, tweets, and YouTube videos in English, Spanish, and American Sign Language.
Deadlines for Filing for the Tax Credit
To file for the tax credits, employers must file by a certain date. Here are two important upcoming tax filing deadlines:
  • September 15. Corporations that file on a calendar year basis and requested an extension to file to September 15 can calculate the health care credit on Form 8941 and claim it as part of the general business credit on Form 3800, which is then included with the corporate income tax return.
  • October 17. Sole proprietors who file Form 1040 and partners and S-corporation shareholders who report their income on Form 1040 have until October 17 to complete their returns. They would also use Form 8941 to calculate the health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.
IRS and HHS also noted other important information about the credit, including:
  • Small businesses that have already filed and later determine they are eligible for the credit can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
  • Businesses without tax liability for 2010 can carry back unused general business credits (including the small employer health care tax credit) five years, rather than only one year under prior law. Small businesses that did not have tax liability to offset in 2010 should evaluate whether they can now take this health care tax credit since the carry back period has been extended an additional four years.
  • Business that couldn’t use the credit in 2010 should consider whether they would benefit by making adjustments that would allow them to claim the health care tax credit in future years. The needed adjustment might often be increasing the percentage of health insurance paid by the employer, but qualifying for the tax credit might make up for the increased employer contribution.
Additional information about eligibility requirements and calculating the credit is available on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.
Changes in the Tax Credit for Different Tax Years
The current small business health care tax credit (as explained above) is in effect through 2013. In 2010 only, transition rules made it easier for small employers to qualify for the credit, if they offered and paid part of the cost of health insurance for their employees. In 2014, the tax credit amount increases–to up to 50% of employer contributions (35% for eligible tax-exempt small employers) – but it will be available only if the employer provides coverage through an Exchange, and only for the first two consecutive years the employer offers such coverage.