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Immediate Health Care Bill Impacts for Small Business

Apr 22, 2010

Much of the health care reform legislation doesn’t really kick in for another four years.  However, as a small business there are some good things on the immediate horizon in the form of a tax credit to offset health insurance premiums.  This provision of the bill takes force immediately.


As a small business owner, you will join millions of other owners who will be getting a  postcard from the IRS in the next few months.  This card will prompt you to check and see if you are eligible for the 2010 tax credit.


Eligible businesses must have fewer than 25 full-time equivalent employees, pay an average annual wage of less than $50,000 and they must cover at least 50% of the cost of health premiums for their workers.  There are also caps on how high the qualifying premiums can be and the credit uses a sliding scale with businesses with fewer than 10 employees and average wages less than $25,000 maxing our, while larger firms and larger payrolls will receive a lower credit.


The credit available for tax years 2010 through 2013 covers up to 35% of a company’s expenditures on health insurance premiums, increasing to 50% in 2014.  The credit is available for a maximum of 6 years (2010 through 2015).   If you have a non-profit, the credit is available as a refund, even if the company has no taxable income.  For- profit companies must apply the credit to offset actual federal income taxes due for the year, with any remaining credit can be carried forward to future years.


Some examples from the IRS show how the credit will work
1.  Main Street Auto Mechanics 

  • Employees: 10
  • Wages - $250,000 total or $25,000 per worker average
  • Employee Health Care Costs:  $70,000

 2010 Tax Credit: $24,500 (35% credit)
 2014 Tax Credit: $35,000 (50% credit)

2.  Downtown Diner

  •  Employees: 40 half-time employees (20 full-time equivalents)
  •  Wages: $500,000 total or $25,000 per full-time equivalent worker
  •  Employee Health Care Costs:  $240,000

 2010 Tax Credit: $28,000 (35% credit with phase-out)
 2014 Tax Credit: $40,000 (50% credit with phase-out)


Will your business be applying the tax credit?

Category: Taxes

Mike Lambert

Mike Lambert is the manager of the Wyoming Market Research Center in Laramie, WY.

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