Small Business Tax Credits

Transcription

1 Small Business Tax Credits How small business tax credits may change the way you run your business. Will Heavin, President Tina Durand, Benefit Consultant Heavin & Associates Insurance Agency, Inc.

2 IRS Video

3 Patient Protection and Affordable Care Act Complete restructuring of the health insurance business Changes to laws TAX CREDIT for small business available IMMEDIATELY

4 Tax Credit Basics Eligibility rules For-profit and tax-exempt employers may qualify. All three of the following criteria must be met in order to qualify: 1. The employer must cover at least 50% of health care coverage costs for workers based on the employee-only (single) rate. 2. The employer must have no more than the equivalent of 25 full-time workers (not counting owners or family members). 3. Employees average annual wages (not counting owners or family members) must be below $50,000.

5 Employee Count Rules Seasonal workers are not counted in determining FTEs and average wages unless they work for more than 120 days during a taxable year (premiums paid on their behalf may be counted in determining the amount of credit) Common Ownership Rules applies Number of employees is determined by dividing the total hours of service by 2,080. The result is then rounded to the lowest whole number. Example: ABC company with 46 half time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and, therefore, may qualify for the credit

6 Average Annual Wages Rules Determined by dividing the total wages paid by the employer during the employer s taxable year to employees by the number of employer s FTEs for the year (rounded down to the nearest $1,000) Example : For the 2010 taxable year, an employer pays $224,000 in wages and has 10 FTEs. The employer s annual wages is $22,000 ($224,000 divided by 10 = $22,400 rounded down to the nearest $1,000)

7 Premium Payments by the Employer Rules part 1 Only premiums paid by the employer for health insurance coverage are counted in calculating the credit Example: if an employer pays 80% of the premiums for employee s coverage (with employees paying the other 20%), the 80% paid by the employer is taken into account in calculating the credit (premium paid via section 125 through salary reduction is not treated as paid by the employer) In calculating the credit for the taxable year beginning 2010, an employer may count ALL premiums paid by the employer in the 2010 tax year, including premiums paid in the 2010 tax year BEFORE the reform passed

8 Premium Payments by the Employer Rules part 2 Health Insurance includes Dental Vision Nursing home care Home health care Community based care Coverage for specified disease or illness Hospital indemnity Fixed indemnity Medicare supplemental health insurance etc. Total premium may not exceed the average premium for the small group market in the state (overall cap aggregates all forms of coverage)

9 Credit Amount The maximum credit is worth up to 35 percent of an employer s premium contribution in 2010 (25 percent for tax-exempt employers). Note that the rate will increase to 50 percent on Jan. 1, 2014 (35 percent for tax-exempt employers). The credit gradually phases out for employers with average wages between $25,000 and $50,000, and for employers with the equivalent of between 10 and 25 full-time workers.

10 IRS mailings Over 4 million postcards were sent by the IRS to small businesses that potentially qualify for the small business tax credit Texas was 3 rd in total with 292,593 only California and New York had more What is different about Texas? Lower cost of living and lower wages

11 What does this law tell small businesses to do? PAY as much of the premium (including dependent premiums) as you can of health, dental, and vision Consider SB80 qualified plans (100% employer contribution plans) Employers with 10 FTEs or less benefit the most Employers with avg. salaries $25k or less benefit the most

12 2014 and beyond (as we know it now) Incentives increase for groups 25 and under with salaries under $50k to pay for even MORE benefits and premiums (incentive goes to 50% for small businesses in the state exchange!) To define or not define (defined contribution strategy)? What s better? $64k in defined contribution to employees or just giving employees a dollar amount to purchase their own benefits on the exchange (receiving a deduction relative to your tax bracket) or $64k in premium with the potential to receive up to a 50% tax credit? Other considerations Will there be price advantages for group products over individual products in the exchange? Will employees still expect employers to provide coverage as a benefit of employment? Will your competition continue to offer group benefits?

13 FAQs: How to claim the credit How does an employer claim the credit? The credit is claimed on the employer s annual income tax return. For tax exempt employer, the IRS will provide further information on how to claim the credit Can the credit be reflected in determining estimated tax payments for a year? Yes. The credit can be reflected in determining tax payments for the year to which the credit applies in accordance with regular estimated tax rules

14 FAQ Family member Do family members of a business owner who work for the business count as employees? Generally, no. A family member of any of the business owners or partners, or a member of such business owner s or partner s household, is not considered an employee for purposes of the credit. Thus, neither the wages nor their hours are counted in determining the number of these business owners and partners are counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. For this purpose, a family member is defined as: a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

15 FAQs cont. Does taking the credit affect an employer s deduction for health insurance premium? Yes. In determining the employer s deduction of the health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit.