Sharif Small
Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees may now qualify for a special tax credit, according to the Internal Revenue Service and the Maryland Health Insurance Partnership.
The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.
The maximum credit is 35% of premiums paid in 2011 by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. By 2014, this maximum credit increases to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible employers that are tax-exempt organizations.
The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year.
Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers. The maximum credit goes to smaller employers, which are those with 10 or fewer FTEs that pay an annual average wages of $25,000 or less.
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. On Sept. 7, 2010, the IRS released a draft Form 8941 to be used by small tax-exempt organizations and for-profit businesses to calculate their tax savings for providing health insurance coverage for their employees. The IRS also announced that nonprofits will claim the tax credit on a revised Form 990-T, which was revised for the 2011 filing season.
Also, Gov. Martin O’Malley proposed and signed into law a program to reduce the number of uninsured Marylanders. The Working Families & Small Business Health Coverage Act, approved during the Special Session of 2007, established the Maryland Health Insurance Partnership (MHIP) for small employers not currently offering health insurance to their employees.
Under the Partnership, a small business that has two to nine full-time employees, has not offered health insurance to its employees during the previous 12 months and meets wage and salary requirements is eligible to receive a subsidy of up to 50% of the premium.
Family coverage also can be subsidized, and once enrolled in the Partnership, the business is likely to continue to be eligible for the subsidy in following years. To receive the premium subsidy, the employer must establish a Section 125 premium conversion plan and must also purchase a wellness benefit as part of the health plan. The subsidy goes both to the employer and to the employee. Enrollment will be capped to stay within the Partnership’s approved annual budget.
For more information about the health care tax credit for small businesses, check out the IRS web site at www.irs.gov and http://mhcc.maryland.gov/partnership. Also, make sure you talk with a tax and insurance professional before taking advantage of this health care cost tax credit.
Sharif J. Small is a retirement tax accountant with S.J.S. Financial Firm. He can be contacted at 443-743-5610 or via www.sjsfinancialfirm.com.
