Healthcare Tax and Small Business: What You Need to Know About the PPACA

Healthcare Tax and Small Business: What You Need to Know About the PPACA

Small business employers in St. Louis may be well aware that most of the changes incurred by the Patient Protection and Affordable Care Act (PPACA) don't go into effect for several years. But the act, which was signed by President Obama in March, is intended to provide small businesses the opportunity to offer or maintain affordable health insurance for their employees.

This health care tax credit isn't for every business, but could be beneficial to yours. Here at Stone Carlie, we suggest the changes might be worth looking into if you provide health insurance coverage to employees. Below are three highlights of the new tax credit:

How does the tax credit work?

The small business tax credit is available to employers with fewer than 25 full-time-equivalent employees (FTEs) and the average annual wages are under $50,000 beginning with the 2010 tax year. The credit is for up to 35% of the cost of group health coverage, including premiums paid before the act's effective date.

The credit is nonrefundable which means it can be used only to offset a business's actual income tax liability. Unused credits, however, can be carried forward to future years.

Maximum credit is available to employers with 10 or fewer FTEs and the average annual wages are less than $25,000. Businesses that exceed either of these criterions are entitled to partial credits, which phase out as the business hits 25 FTEs or the $50,000 average annual wage limit.

It's important to remember only the employer's portion of health insurance premiums count in calculating the credit. Whether this amount is further reduced or not depends on the average premium for the small group market in the employer's state or area.

If you are concerned with the higher salaries for management or have 25 or more employees, you may still qualify as the following employees don't count (however, you can't take credits for premiums paid for these employees' health care coverage):

Owners, including sole proprietors, partners, more-than-2% S corporation stakeholders, and more-than-5% owners of other businesses

Employees who are family members of the owners described above

Seasonal workers, unless they work more than 120 days during the tax year

If you provide health insurance coverage to employees, this tax credit can be beneficial for your business. Read our most recent newsletter about other PPACA variances and discrepancies.

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