The recent health care reform legislation included a new health care tax credit for certain small businesses that provide health insurance to their employees.
The credit is available to small companies and tax-exempt organizations for the years of 2010 – 2013. So, for those companies with 25 or fewer full-time employees with an average wage of $50,000 or less, and the company pays a minimum of 50 percent of their employees coverage are eligible. The credit is phased out based on size and salaries of the company. Companies with 10 or fewer employees with an average wage of $25,000 will receive the highest credit of 35 percent of premiums paid. This credit increases to 50 percent in 2014.
Note: The credit is claimed on the business tax return NOT the employment tax returns.
If an owner of a business also provides services to it, the owner does count as an employee.
A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of full time employees or the amount of average annual wages; so the premiums paid on their behalf are not counted in determining the amount of the credit. It is strongly advised you speak with your accountant to determine which is the best route for your company.