The Affordable Care Act enacted last year contains some tax provisions that take effect this year and more that will be implemented during the next several years. One of the provisions included in the Act is the Small Business Health Care Tax Credit.  

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability, but is non-refundable.   If your business is not currently offering health insurance benefits, this credit may be a way to ease the burden.   On the flip side, beginning January 1, 2013, any employer who has 50 or more full-time employees that does not offer at least 60% coverage for employees' health care costs will be subject to monthly fines.

Eligibility Rules

• Providing health care coverage. A qualifying employer must pay 50% or more of the cost of the single (employee only) premium.   A uniform percentage must be paid for all employees.  
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer 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

• Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs for years 2010 to 2013. For tax year 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.

The IRS has issued a new form, Form 8941 Credit for Small Health Insurance Premiums, to calculate the credit.   Ask your CPA to help determine if your business is entitled to the Health Care Tax Credit.