Starting in 2010, small businesses and tax-exempt organizations can get tax relief offered by the new Small Business Health Care Tax Credit. This tax credit, signed into law by President Obama earlier this year, takes effect beginning in the tax year 2010. It is designed to help small businesses and small tax-exempt organizations afford the cost of covering their employees.

“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

The tax credit is available to small businesses that pay at least half the cost of single coverage for their employees in 2010. It was created specifically to offer tax help to small businesses and tax-exempt organizations that primarily employ low and moderate-income workers.

Below are specifics and answers to tax questions you may have about the tax credit:

Eligibility Rules
To qualify for this tax relief, small businesses and tax-exempt organizations must meet certain eligibility rules pertaining to the percentage of health care costs they provide, the firm size and average annual wage of it’s employees. The specific eligibility rules are as follows:

• Health care coverage
  A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size
  A qualifying employer must have less than the equivalent of 25 full-time workers (small businesses with fewer than 50 half-time workers may be eligible).
• Average annual wage
  A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify

Amount of Credit
The maximum tax credit is 35% of premiums paid for small businesses and 25% for tax-exempt organizations. Since the credit is targeted to help those who employ low- and moderate-income workers, the maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Below are more details on the Amount of Credit:

• Maximum Amount
  The credit is worth up to 35 percent of a small business’ premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
• Phase-out
  The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Small business or tax-exempt organizations can determine if they qualify for the Small Business Health Care Tax Credit with three simple steps.

To recap, starting in the tax year 2010, the new health care tax credit will offer small businesses tax help as an incentive to provide their employees health care coverage.

To get more information about the tax credit or get answers to your tax questions go the IRS website.

source: irs.gov