Employee Benefits Compliance

IRS Issues Final Guidance to Help Small Employers Claim New Health Care Tax Credit

The Internal Revenue Service today released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. Today’s release includes a one-page form and instructions small employers will use to claim the credit for the 2010 tax year.

The following documents are now posted on IRS.gov:

The instructions and Notice 2010-82 are designed to help small employers correctly figure and claim the credit.

The purpose of the small business health care tax credit (which is part of the Affordable Care Act enacted in March of this year) is to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees –either for the first time or by maintaining existing coverage.

The credit is generally available to small employers (i.e., those employing fewer than 25 full-time equivalent employees) that pay average wages of less than $50,000 and that pay at least half of the premiums for employee-only health insurance coverage. For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small businesses and 25% of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50% and 35%, respectively. Small businesses can claim the credit for 2010 – 2013 and for any two years after that.

The new guidance issued today addresses questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. (Form 990-T will now be used by any eligible tax-exempt organization to claim the small business health care tax credit, and will also continue to be filed by those organizations liable for the tax on unrelated business income.)

More information about the credit, including a step-by-step guide to claiming the credit and answers to frequently asked questions, is available on the Affordable Care Act page on IRS.gov.