Money Matters

Small Employer Health Insurance Credit
The new health insurance act offers a tax credit to certain small employers providing health insurance coverage for their employees. The credit is specifically targeted to help certain small businesses that primarily employ moderate-income workers and lower-income workers. For purposes of determining whether an employer is a small business employer and determining the amount of the credit, self-employed individuals (including partners and sole proprietors, 2% shareholders of an S corporation, and 5% owners of the employer and certain relatives of these individuals) are not treated as employees for purposes of the small employer health insurance credit.
During the first phase of the credit, for years 2010 – 2013, the amount of the credit is generally 35% of the employer's contributions toward the employees' health insurance premiums. In the second phase of the credit, years after 2013, the amount of the credit is generally 50% of the employer's contributions. For all years, the amount of the credit is subject to a phase-out as described below.
An employer qualifying for the credit has to meet all of the following requirements:

The employer cannot have more than 25 full-time equivalent (FTE) employees for the tax year. An employer's FTE employees are determined by dividing the total hours worked by all employees during the year by 2,080.
The average annual wages of the employees cannot exceed $50,000 for the tax year. The average annual wages are determined by dividing the total wages the employer pays by the number of its FTE employees.
The employer has to contribute at least 50% of the premiums for the employees' health insurance coverage on a uniform basis. However, for tax years beginning in 2010 only, an employer can meet this requirement even if it pays differing percentages of different employees' premiums as long as all employer payments are at least 50% of each employee's premium based on single (employee only) coverage.

The amount of the credit gradually phases out if the number of a small business employer’s FTE employees exceeds ten or if the average annual wages of the employees exceed $25,000. Under the phase-out, the full amount of the credit is available only to an employer with ten or fewer FTE employees and whose employees have average annual wages of less than $25,000. However, an employer with exactly 25 FTE employees or average annual wages exactly equal to $50,000 is not in fact eligible for the credit. Since the eligibility rules are based in part on the number of FTE employees, not the number of employees, in certain circumstances a business that uses part-time help can qualify for the credit even if it employs more than 25 individuals.
Other important facts:

There are also special rules that apply to seasonal workers, leased employees, and employees who have more than 2,080 hours of service during a tax year.
For the first phase of the credit, an employer can claim the credit on qualifying health insurance purchased from an insurance company licensed under state law. For the second phase of the credit, the credit is only available if the employer purchases health insurance coverage for its employees through a state exchange.
An employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit.

Any unused credit can be carried back for one year (but not before 2010) and forward for 20 years to offset future taxes.



	Sales Tax - Rental Property Life Insurance Good Debt vs. Bad Debt Difference Between a Will and Living Trust Tax Freedom Day Small Business/ Self-Employed Individuals Retirement Options Establishing a Financial Safety Net Financial Tips 2010 Tax Relief Act for Individuals Tips for Starting Your Own Business Tips for Small Business / Self-Employed Individuals Archived Video Tips	Small Employer Health Insurance Credit The new health insurance act offers a tax credit to certain small employers providing health insurance coverage for their employees. The credit is specifically targeted to help certain small businesses that primarily employ moderate-income workers and lower-income workers. For purposes of determining whether an employer is a small business employer and determining the amount of the credit, self-employed individuals (including partners and sole proprietors, 2% shareholders of an S corporation, and 5% owners of the employer and certain relatives of these individuals) are not treated as employees for purposes of the small employer health insurance credit. During the first phase of the credit, for years 2010 – 2013, the amount of the credit is generally 35% of the employer's contributions toward the employees' health insurance premiums. In the second phase of the credit, years after 2013, the amount of the credit is generally 50% of the employer's contributions. For all years, the amount of the credit is subject to a phase-out as described below. An employer qualifying for the credit has to meet all of the following requirements: The employer cannot have more than 25 full-time equivalent (FTE) employees for the tax year. An employer's FTE employees are determined by dividing the total hours worked by all employees during the year by 2,080. The average annual wages of the employees cannot exceed $50,000 for the tax year. The average annual wages are determined by dividing the total wages the employer pays by the number of its FTE employees. The employer has to contribute at least 50% of the premiums for the employees' health insurance coverage on a uniform basis. However, for tax years beginning in 2010 only, an employer can meet this requirement even if it pays differing percentages of different employees' premiums as long as all employer payments are at least 50% of each employee's premium based on single (employee only) coverage. The amount of the credit gradually phases out if the number of a small business employer’s FTE employees exceeds ten or if the average annual wages of the employees exceed $25,000. Under the phase-out, the full amount of the credit is available only to an employer with ten or fewer FTE employees and whose employees have average annual wages of less than $25,000. However, an employer with exactly 25 FTE employees or average annual wages exactly equal to $50,000 is not in fact eligible for the credit. Since the eligibility rules are based in part on the number of FTE employees, not the number of employees, in certain circumstances a business that uses part-time help can qualify for the credit even if it employs more than 25 individuals. Other important facts: There are also special rules that apply to seasonal workers, leased employees, and employees who have more than 2,080 hours of service during a tax year. For the first phase of the credit, an employer can claim the credit on qualifying health insurance purchased from an insurance company licensed under state law. For the second phase of the credit, the credit is only available if the employer purchases health insurance coverage for its employees through a state exchange. An employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. Any unused credit can be carried back for one year (but not before 2010) and forward for 20 years to offset future taxes.