Its overall impact may be debatable, but one thing the Affordable Care Act doesn’t do is provide much tax relief — with one notable exception.
“The bill is mostly a series of tax increases,” says Robert Verzi, CPA, international tax partner with Habif, Arogeti & Wynne, LLP. “But there is one thing in particular that will help small employers: a tax credit for paying premiums for employees.”
Smart Business spoke with Verzi about the tax credit and how to find out if it’s available to you.
How does the tax credit work?
The credit can be claimed if an employer pays a certain amount of premiums — it has to be at least 50 percent of the premiums for an employee. Also, the employer must be considered a small business.
For 2010, the credit is 35 percent of premiums paid. It is limited, though. There is a small business benchmark premium. For example, if you paid $6,000 for an employee, there is a cap for how much you can claim. In Georgia it is $4,612 for an individual. For a family it’s $10,598. If you pay in excess of that, you don’t get to claim the credit on the excess premium paid. The IRS gave the different benchmarks for each state. The premiums are different depending on which state you’re in.
Who’s eligible for the credit?
You can’t have more than 25 full-time equivalent (FTE) employees and you can’t have an average annual wage greater than $50,000 for these FTE employees. Small businesses are typically run by their owners. The owners and their families are not counted as FTE employees. Their premiums aren’t counted, but their wages aren’t counted either. That’s good, because it would affect the average wage per person if you included them. If the owner of an S corporation is making $100,000 and he has three employees, his salary and premiums are excluded from the calculation.
There is also a special rule for seasonal employees. If an employee doesn’t work 120 days or more for the company, you can exclude them from calculation, which can be good or bad. Sole proprietors, partners, 2 percent S corp. shareholders and 5 percent owners of corporation and their relations are all excluded. Family members that are employees are excluded, as well.
Part-time employees are included as well as people hired from a professional employment organization (PEO), after figuring out the FTE employees.
