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Guidance on Reform’s Small Business Tax Credit

Today, The IRS released a detailed guidance for small employers interested in taking advantage of the health care tax credits that go into effect this year as part of federal reform. In general, the credits are meant to encourage employers that DO NOT offer coverage to begin to do so, as well encourage employers that DO offer coverage to maintain that offer. The guidelines are required reading for small businesses owners, which include detailed examples of credit qualifications. Below are excerpts from the guidelines, and read the full report here: Notice 2010-44 Tax Credit for Employee Health Insurance Expenses of Small Employers

-35% credit to employers with less than 10 employees/average salaries under $25K that pay at least 50% of insurance premiums
-Credit phases down to zero for employers with 50+ employees/average salaries over $50K
-Value of credit will NOT be reduced by any state-based health care credits
-Number of workers based on Full Time Equivalents (FTE) by the easiest of three methods: (1) number of full-time workers (counting bodies), (2) weeks worked, (3) hours worked
-Seasonal workers not counted
-Employers do NOT have to meet requirement under the law to provide the same level of coverage to every worker
-The credit is a general business credit and, thus, any unused credit amount can be carried back one year and carried forward 20 years
-For a tax-exempt eligible small employer, the credit is a refundable credit, so that even if the employer has no taxable income, the employer may receive a refund
-The credit can also be used to offset an employer’s alternative minimum tax (AMT) liability for the year

Comments on future guidance have been requested by the IRS, and can be submitted to Notice.comments@irscounsel.treas.gov, with subject line Notice 2010-44.