My purpose in writing this article is not to engage in a debate over the politics of what the Federal government is doing these days. I simply want to make my readers aware of a couple programs designed to provide tax relief for small business.
Health Care Initiatives
The firsts is the Patient Protection and Affordable Care Act, passed by Congress to motivate small employers to offer health insurance coverage for the first time or to maintain the coverage they have been providing. Basically, small employers that cover at least half the cost of health insurance for employees in 2010 may be eligible for a tax credit. The act targets small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.
Four million small businesses and tax exempt organizations received postcards from the IRS about the new Small Business Health Care Tax Credit. The information on the postcards indicated that small employers may be eligible to receive a tax credit for up to 35% of the cost of the premiums they pay for employee health care. Tax exempt organizations may be eligible to receive a tax credit of up to 25% for the cost premiums they pay for employee health care.
For tax years 2010-2013, the maximum credit of 35% and 25% of premiums paid by eligible small business employers and tax-exempt organizations goes to those with the equivalent of 10 or fewer full-time (FTE) employees — paying annual average wages of $25,000 or less. In 2014 the maximum credit rises to 50% of premiums paid by eligible small business employers and 35% for tax-exempt employers.
It is important to note that businesses with more than 25 employees could still qualify for the tax credit if some of them are part time. However, employers with 25 FTEs or more, or those that compensate employees $50,000 per year or more probably won’t qualify for the credit.
Here are the eligibility requirements:
- Employers must cover 50% of the premium for employee only health care.
- Employee numbers must not exceed the equivalent of 25 full time workers.
- Employee compensation must average less than $50,000 annually.
Eligible small businesses can claim the tax credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
These frequently asked questions will provide additional details on the small business tax credit for health insurance as well as the IRS website.
Hiring Initiatives
Two new additional tax benefits are designed to incent employers to add new positions to their payrolls. These tax benefits are available to employers hiring workers who were previously unemployed or only working part time. Under the Hiring Incentives to Restore Employment (HIRE) Act, employers who hire unemployed workers after Feb. 3, 2010 and before Jan. 1, 2011 have the opportunity to qualify for a 6.2% reduction in payroll taxes.
In effect, employers will be exempt from their share of Social Security taxes on wages paid to these workers after the date of enactment. However, employers still need to withhold 6.2% of the employee’s wages for Social Security taxes, as well as income taxes. And, both employer and employee will still need to pay Medicare taxes. The employer’s exemption from paying their portion of Social Security taxes will not have any impact on the employee’s future Social Security benefits.
Plus, for each of these workers who are retained for at least a year, businesses may claim an additional general business tax credit of up to $1,000 per worker when they file their 2011 income tax returns.
The tax exemption and tax credit is also available to employers who are filling existing positions but only if former employees left voluntarily or for cause. Family members and other relatives do not qualify.
To verify eligibility, employers must obtain a statement from each eligible new hire certifying that he or she was unemployed or worked less than 40 hours for another employer at least 60 days before starting work. You can obtain a form from the IRS.
Businesses who may qualify to claim the payroll tax benefit for eligible newly-hired employees include agricultural employers, tax-exempt organizations, public colleges and universities. Household employers cannot claim this new tax benefit.
Employers will claim the payroll tax benefit on their quarterly federal employment tax return. Eligible employers can begin claiming the new tax incentive on their revised employment tax form for the second quarter of 2010. Forms and additional details on these two new tax provisions can be found at IRS.gov.
Although these initiatives alone may not be enough in and of themselves to revitalize the health of small business in America, they are a step in the right direction.
If you would like to contact me, you can do so by visiting my LinkedIn page or emailing me at mike.clough@bestbizpractices.org.
Posted by: Mike Clough
