Health Care Tax Credit for Small Businesses

President Obama’s health care bill adds a new tax credit for small businesses of up to 50%  (or up to 35% for tax-exempt small employers) of the total insurance premium cost for providing health insurance coverage to their employees.

To be eligible for the credit, the small business employer must contribute at least 50% of the total premium cost per employee (not including employee salary reduction) of a qualified health plan offered by the employer through an Exchange or a benchmark average premium. Small businesses eligible for the credit must have fewer than 25 employees and average annual wages of less than $50,000 for 2010 through 2013, adjusted for inflation beginning in 2014. Employers with 10 or fewer employees and average annual wages of less than $25,000 are eligible for the full credit.

Lower credit amounts apply for 2010 through 2013. For those years, small employers receive a small business tax credit for up to 35% of their contribution toward employee health insurance premiums. Eligible tax-exempt small employers receive a 25% tax credit for those years.

For 2014 and beyond, small employers that purchase coverage for their employees through an Exchange will receive a tax credit of up to 50% of their contribution to premiums. Tax-exempt small employers will receive a tax credit of up to 35% of their contribution to premiums. The credit period will have a two consecutive year limit.

Effective in general for amounts paid or incurred in taxable years beginning after December 31, 2009. Effective for credits determined under Code §45R in taxable years beginning after December 31, 2009, and to carrybacks of such credits.
If you have questions about how the new health care legislation will affect your business contact Paul by clicking here.

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