Bay Area Tax Lawyers – If you are a small employer with fewer than 25 full-time equivalent employees who earn an average wage of less than $50,000 a year and you pay at least half of employees’ health insurance premiums…then there is a tax credit that may put money in your pocket.

The Small Business Health-Care Tax Credit is specifically targeted to help small businesses and tax-exempt organizations. The credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those that already offer health insurance maintain the coverage they currently have.

Here is what small employers need to know so they don’t miss out on the credit for tax year 2011.

  • Qualifying businesses include this credit as part of the general business credit. Any unused credit on Form 3800, General Business Credit, would be included with the tax return. Any unused credit carries back one year and then forward up to 20 years.
  • The minimum required number of twenty-five full-time equivalent employees is generally determined by adding up all hours worked by both full-time and part-time employees (not exceeding 2,080 hours per employee) and then dividing the total by 2,080 (rounding down to the next whole number).
  • Average annual wages are determined by dividing the employer’s total FICA wages (without regard to the wage base limitation) for the tax year by the number of the employer’s equivalent full-time employees for the year (rounded down to the nearest $1,000).
  • Tax-exempt organizations can also claim this credit.
  • Businesses that couldn’t use the credit in 2011 may be eligible to claim it in future years. Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid; for eligible tax-exempt employers, the maximum credit is 25 percent of premiums paid. Beginning in 2014, the maximum credit will go up to 50 percent of qualifying premiums paid by eligible small business employers and 35 percent of qualifying premiums paid by eligible tax-exempt organizations.

John Erik Fraker, Esq.

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John Erik Fraker, Esq.

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