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

President Obama has proposed creating a tax incentive for small businesses that hire new employees even as Congress tries to figure out how such a deal would work.

There is no question that creating a tax incentive for small businesses that hire workers or increase payroll would help the economy.

Lawmakers on Capitol Hill have been working for months on ways to develop small business tax incentives and give small businesses tax help in a way that it won’t be abused.

Obama and Congress have both been vague on how the tax break would work and how it would be administered.

“I believe it’s worthwhile to create a tax incentive to encourage small businesses to add and keep employees and I’m going to work with Congress to pass one,” Obama said.

With the 2009 year ending, Congress is running out of time to pass a jobs package this year, and the process will be even more complicated if the administration doesn’t come up with details. Moreover, the Senate is preoccupied with the health care debate, making any action less likely.

The Obama administration is expected to propose extensions and enhancements tax credits and tax breaks that were part of the federal economic stimulus package passed in early 2008.

Obama also proposed eliminating capital gains taxes on small business stock, if it is purchased in 2010 and held for at least five years, expanding a tax break enacted in the stimulus package.

While Obama and the Democrats focus on health care reform, Republicans believe the focus should be on getting Americans back to work. Unemployment rates currently stand at 10 percent.

Tax experts ponder how a small business tax break for hiring working would work. Do you give a tax break just for hiring more employees, or do companies have to simply increase payroll? How long do the companies keep the workers? How do you enforce the requirements?

“You’re trying to subsidize people for doing things they wouldn’t otherwise do, but we don’t know what they would otherwise do,” said Eugene Steuerle, a Treasury Department official in the Reagan administration who is now co-director of the Tax Policy Center, a Washington think tank.

John H. Bishop, an economist and a professor at Cornell University, has a proposal for extend tax credits to companies that increase payroll subject to Social Security taxes. Since only the first $108,600 of a worker’s pay is subject to Social Security taxes, executives couldn’t get the credit by giving themselves big bonuses, he said.

Bishop’s small business tax credit proposal would help the economy if companies either raise the pay of existing workers or hire new workers. Bishop’s proposal, modeled after a similar tax credit enacted in the 1970s, has been circulating on Capitol Hill for several months.

“It does exactly what we want,” Bishop said. “It focuses on hiring Americans to work now.”

source: The Associated Press 2009

Every year, American taxpayers perform income tax preparation to file their federal income tax. Individuals and small businesses alike have income tax questions they can’t answer. The solution to this problem is to contact income tax attorneys, income tax lawyers, file online tax or hire an income tax service.

Which solution you choose is based on the complexity of your tax liabilities. Individuals without itemized deductions can use online tax software, an online tax service or do the online tax filing themself. Individuals who have itemized deductions may be better off served by consulting an income tax attorney, income tax lawyer or income tax service to get income tax questions and/or to complete the federal income tax forms.

For those who have unresolved tax disputes with the Internal Revenue Service, consulting with an income tax attorney obviously makes sense. The IRS has the right to withhold tax refunds, garnish wages and even liquidate personal assets to resolve federal income tax debts. Hiring income tax attorneys can be expensive but they specialize in the ability to arbitrate with the IRS . It is not uncommon to have an income tax attorney resolve the tax debt with the IRS at a discount. That tax debt discount is often agreed to be paid in installments instead of a lump sum payment.

Overall, individuals and small businesses are much better off hiring an income tax service or an income tax attorney than completing the forms via an online tax service because the income tax service and income tax attorneys are responsible for protecting their clients. Income tax attorneys and income tax services reputation is staked on the job they do.