New Small Business Healthcare Credit

As the cost of healthcare rose during the past decade, the percentage of companies that were providing health insurance to their employees dropped from 57% in 2000 to 45% in 2007. This, among other political reasons, sparked Healthcare Reform which will help small businesses to provide health insurance to their employees while penalizing larger businesses for failing to provide health insurance to their employees.

Since the plan was first announced earlier this year, MANY misconceptions have surfaced. The most common misconception was that this new plan will provide a 35% tax credit to all small businesses providing health insurance to their employees.

However, as we have seen in the details of the plan, here is a more accurate representation of the Small Business Health Care Tax Credit for Small Employers:

How to Qualify as a Small Employer:

-The employer must pay at least half of the cost of health insurance
-The employer must have less than the equivalent of 25 Full Time Employees (if a company has more than 25 employees, but the total number of hours worked is 50,000 or less, they still may qualify)
-The average annual wages must be $50,000 or less (total wages divided by the equivalent number of Full Time employees)

Amount of the Credit:

-35% is the maximum credit (in 2014, this maximum credit jumps to 50%). For Tax-Exempt Companies, the maximum credit is 25%.
-The credit is partially phased out for employers who pay an average annual wage between $25,000 and $50,000 (for each $1,000 over $25,000, the credit is reduced by approximately 4%)
-The credit is partially phased out for employers who employ the equivalent of between 10 and 25 Full Time Employees (for each employee over 10, the credit is reduced by approximately 6.67%)

Be sure to visit MichaelTHanley.com often. I will continue to post updates throughout the year as more details emerge.

Michael T. Hanley, CPA is the Managing Partner of the Long Island, NY CPA Firm, Merl & Hanley, LLP and the author of ‘Effective Tax Planning for the MicroBusiness’ and ‘Choosing the Right Structure for Your Business.’

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