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IRS Hikes Small Business Tax Breaks Under Health Reform

To that end, the IRS in late August issued new ACA regulations affecting smaller businesses, those with fewer than 25 employees who make an average wage of less than $50,000 a year, clarifying which employers would qualify for tax credits. One of the key changes is the increase in the amount of tax credits to offset the health insurance cost...s provided to workers.

From 2010 through 2013, the credit can reach 35 percent of the non-elective medical insurance contributions made on behalf of employees, with 25 percent for tax-exempt organizations like charities, according to the IRS. The recent changes, taking effect Jan. 1, 2014, raise the maximum credit to 50 percent (35 percent for tax-exempt groups).

If you are a small business owner who did not owe tax during the year, you can carry the credit back or forward to other tax years, according to the IRS guidelines. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit -- that's both a credit and a deduction for employee premium payments.

Additionally, the new regulations allow businesses with insurance plans that don't begin on Jan. 1 to be eligible for a tax credit if they buy health insurance from the small business exchange at some point during 2014.

Here are other key points, as detailed by the IRS:
To be eligible, employers must cover at least 50 percent of the cost of single (not family) health care coverage for each worker.
The business owner must pay premiums on coverage purchased through a health insurance exchange, otherwise known as the Small Business Health Options Program (SHOP). These exchanges are online marketplaces where employers and individuals can research and buy health plans. States are expected to run their own exchanges or partner with the federal government to organize and implement them.
The credit will be available to eligible employers for two consecutive taxable years.
Some higher-income individuals, specifically owners of sole proprietorships, partners in partnerships or shareholders, do not have to be counted when calculating the average wage. This makes it much easier for lawyers and doctors and other professionals with small businesses to qualify for the credit.

The IRS, on its website, gave an example of the possible benefits: "If you pay $50,000 a year toward workers' health care premiums, and if you qualify for a 15 percent credit, you save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that's a total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year."

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