IncSmart Washington DC (Small Business and Startups) - The Affordable Care Act includes a Small Business Health Care Tax Credit in the health care law to make coverage more affordable. The credit is designed to encourage small businesses or small tax-exempt organizations to either maintain existing coverage or offer health insurance to their employees for the first time.  Small and tax-exempt employers that provide health care coverage to their employees are eligible for the Small Business Health Care Tax Credit if:
  • They employ fewer than 25 full-time employees 
  • Annual average earnings wage per employee is less than $50,000 per year 
  • They pay at least 50 percent or more of employees’ premium cost for health insurance coverage.

There is a sliding-scale tax credit of up to 35 percent of the employer’s eligible premium expenses for tax years 2010–2013 that increases to a maximum of 50 percent in 2014.

  • Employers with 10 or fewer full-time employees, paying annual average wages of $25,000 or less, qualify for the maximum credit of 35 percent.
  • For tax-exempt employers, the maximum tax credit is 25 percent of eligible premium expenses for tax years 2010–2013, increasing to 35 percent in 2014.
  • Beginning in 2014 coverage must be purchased from Covered California to qualify for a tax credit.

Small business, whether for profit or tax-exempt, can claim the Small Business Health Care Tax Credit as part of the general business credit starting with the 2010 income tax return. Small businesses can calculate the credit with the new IRS Form 8941, Credit for Small Employer Health Insurance Premiums, and tax exempt employers can calculate the refund with IRS Form 990-T, Exempt Organization Business Income Tax Return. Both are available at www.IRS.gov/sbhtc

Small businesses can claim the credit now starting with their 2010 income tax return. Those that have already filed a tax return and later determine they are eligible for the credit may file an amended tax return. In fact, employers can potentially claim the credit for a total of six years: the initial credit available from 2010 through 2013 plus two consecutive years beginning in 2014.

By David Oliver

For 10 years, IncSmart.biz Business Services has helped companies and people from all over the world form DC Corporations and DC Limited Liability Companies. When you call, email, instant message or live chat with our office, expect personal attention.  We are very excited about helping you form your new company.  Each state is so different when it comes to filing documents, you will know right away you are in the right place.

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