IRS Updates FAQs About Small Business Health Care Tax Credit

The Internal Revenue Service has provided questions and answers on four aspects of the small business health care tax credit. The Patient Protection and Affordable Care Act added IRC Sec. 45R, which provides a tax credit of up to 35 percent of premium costs for small employers offering health insurance. Under the provision, an eligible small employer may claim a tax credit in tax years beginning after 2009 if it makes nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of its participating employees.

The first set of Q&As from the IRS addresses who is entitled to the credit, such as exempt organizations, household employers, and small, foreign employers. It also addresses employer contributions to multi-employer plans and farmers cooperatives.

The second set deals with calculating the credit. This includes the question of which expenses count for the credit, average premiums for the small-group market, employers with employees in more than one state, the maximum credit for a nonexempt employer, full-time employees and full-time equivalents (FTEs), premiums paid in 2010, state credits and subsidies for health insurance, and church welfare plans.

The third set focuses on determining full-time employees (FTEs) and average annual wages. It addresses determination of the number of FTEs and the amount of average annual wages, short tax years, part-time employees, seasonal workers, leased employees, family members of business owners, eligibility determinations where the employer is a member of a controlled group, and inclusion of ministers in exempt groups.

Finally, the fourth set addresses how to claim the credit, including both exempt and nonexempt employers, use of the credit to offset alternative minimum tax liability, claiming the credit with no income, estimated tax payments, the employer’s deduction for health insurance premiums, reduction in employment tax benefits in anticipation of the credit, and application for the credit by an employer with a fiscal tax year.

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