maximum credit

Claiming the Small Business Health Care Tax Credit

If you’re a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.

What is the Small Business Health Care Credit?

The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.

How Does the Credit Save Me Money?

For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014 and the rate will increase to 50 percent and 35 percent, respectively.

Note: The sequester, which took effect on March 1, 2013 includes a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers. As such, the refundable portion of the claim will be reduced by 8.7 percent. Without congressional intervention, this rate remains in effect until the end of fiscal year 2013 (September 30).

The amount of the credit you receive works on a sliding scale, so the smaller the business or charity, the bigger the credit. Simply put, if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.

If you pay $50,000 a year toward workers’ health care premiums–and you qualify for a 15 percent credit–you’ll save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s a total savings of $30,000. And, if in 2014 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

Is My Business Eligible for the Credit?

To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs) and those employees must have average wages of less than $50,000 a year.

Let’s take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20.

Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10–the number of FTEs–and the result is your average wage. In this example, the average wage would be $20,000.

Can Tax-Exempt Employers Claim the Credit?

Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Can I Still Claim the Credit Even If I Don’t Owe Any Tax This Year?

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are 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.

Can I File an Amended Return and Claim the Credit for Previous Tax Years?

If you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years.

Give us a call if you have any questions about the small business health care credit. And, if you need more time to determine eligibility this year we’ll help you file an automatic tax-filing extension.

By Leon Clinton
April 8, 2013

6 Tax Changes That Benefit Taxpayers for 2012

Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), many tax provisions that expired in 2011 were retroactively extended (or made permanent) that are of benefit to taxpayers filing 2012 returns this year. Here are six of them:

1. Education-Related Tax Deductions

ATRA extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: the deduction for qualified tuition and related expenses and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken before calculating adjusted gross income (AGI).

2. Limited Non-Business Energy Property Credits

Non-business energy credits expired in 2011, but were extended (retroactive to 2102) through 2013 by ATRA. For 2102 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010).

Because of the way the credit is figured however, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That’s because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500).

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

3. Mortgage Insurance Deductible as Qualified Interest

ATRA extended, through 2013 (and retroactive to 2102), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer’s AGI.

4. AMT “Patch” Made Permanent

The AMT ‘patch” was made permanent by ATRA; however, exemption amounts for 2012 and beyond are higher than in years’ past and are now indexed to inflation. For tax-year 2012, the alternative minimum tax exemption amounts increase to the following levels:

$78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
$39,375 for a married person filing separately, up from $37,225 in 2011.
$50,600 for singles and heads of household, up from $48,450 in 2011.

5. Transportation “Fringe Benefits”

Parity for transportation fringe benefits provided by employers for the benefit of their employees expired at the end of 2011; however, ATRA reinstated this parity retroactive to 2012. As such, the monthly limit for qualified parking is $240 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2012.

6. State and Local Sales Taxes

Retroactive to 2012, ATRA extended (through 2013) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.

If you have questions about these or other tax changes, please call us. We’d be happy to assist you.

By Leon Clinton
February 4, 2013

Tax Credit for Employers Hiring Veterans This Year

Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit (WOTC), but employers planning to claim an expanded tax credit for hiring certain veterans should act soon because they are only eligible for the credit if the veteran begins work before the new year.

Here are five key facts about the WOTC as expanded by The Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011.

1. Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after November 22, 2011 but before January 1, 2013.

2. Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.

3. Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran’s unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.

4. Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.

5. State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work. Some states accept Form 8850 electronically.

Please give us a call if you need assistance filling out Form 8850 or if you’d like more information about the expanded tax credit for hiring veterans.