By the Numbers
New Tax Benefits Available to Small Businesses and Tax-Exempt Organizations in 2010
By Juan Cocuy
There are several new tax benefits available to small businesses for providing health insurance and for hiring previously unemployed workers.
Small Business Health Care Tax Credit
Many small businesses and that provide health insurance coverage to their employees now qualify for a special tax credit. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. To be eligible, 1) a qualifying employer must cover at least 50% of the cost of health care coverage for some of its workers based upon a single rate, 2) have less than the 25 full-time workers or the equivalent (“FTEs”) (the hours worked by part-timers count), 3) pay average annual wages below $50,000. Because the eligibility rules are based upon FTEs and not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 employees.
The credit is worth up to 35 percent of a small business’ premium costs for tax years 2010-2013. In 2014 the credit increases to 50%. The credit is phased out gradually for companies with average wages between $25,000 and $50,000 and for companies with the equivalent of between 10 and 25 full-time workers. The maximum credit goes to smaller employers-those with 10 or fewer FTEs paying annual wages of $25,000 or less. The credit is available for a maximum of six years: 2010 through 2013 and for any two years after that,
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. Companies can only use the credit to offset the actual federal income taxes they pay for the year. However, any unused portion of the credit can be carried forward for up to 20 years to reduce future taxes.
Tax-Free Employer-Provided Coverage Available for Children under Age 27
Effective March 30, 2010 health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee. This is available if the children are already covered under the employer’s plan or are added to the plan at any time. This expanded health care benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. The new age 27 standard replaces the lower age limits that applied under previous tax law , as well as the requirement that a child generally qualify as a dependent for tax purposes.
Hiring Incentives to Restore Employment Act (“HIRE”)
Employers who hire unemployed workers between February 4, 2010 and December 31, 2010 may qualify for a 6.2 percent payroll tax incentive that effectively exempts them from the employers 6.2% Social Security Tax on wages paid to those workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits. Employers can claim this payroll tax forgiveness on the quarterly 941, starting with the 2nd quarter 2010 return.
For each eligible worker retained at least a year, businesses may claim an additional general business credit of up to the lesser of $1,000 or 6.2% of federal taxable wages on the business’s 2011 federal income tax return. The employee’s wages for the last 26 weeks of that year must be at least 80% of the wages paid in the first 26 weeks. These tax benefits are primarily for new positions, not to fill existing ones. In addition, employers must obtain a statement from each new hire certifying that they were unemployed the 60 days before beginning work. Household employers cannot claim the new benefit.
If you have any questions on these or other topics, please feel free to call me at 561-762-0227.
Juan C. Cocuy CPA
With contributions from Liz Rubin 5.12.10
About Cocuy, Burns & Co., P.A. Located at 12400A South Shore Boulevard, Cocuy, Burns & Co., P.A. is the only full-service CPA firm in the western communities. We have been in business for over 20 years and provide a full menu of services to the professionals and businesses in our area including tax compliance and planning, auditing and consulting. We can be reached at 561-793-1927 or by visiting www.cocuyburns.com.