The Internal Revenue Service yesterday (Dec. 2) released final guidance for small employers eligible to claim the new small business health care credit for the 2010 tax year. Included in the Affordable Care Act enacted in March, the small business health care credit is designed to encourage both small businesses and tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain existing coverage.

The credit is generally available on a sliding scale to small employers who pay at least half of the premiums for single health care coverage for their employees. Smaller companies with ten or fewer full-time equivalent (FTE) employees who are paid average annual wages of $25,000 or less will receive the maximum credit.

For 2010 through the 2013, the maximum credit is 35 percent of premiums for small businesses and 25 percent for tax-exempt organizations. Beginning in 2014, the maximum tax credit will jump to 50 percent of premiums for small businesses and 35 percent for tax-exempt organizations.

The credit is completely phased out for employers who have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the actual number of employees, companies that use part-time workers may qualify even if they employ more than 25 individuals.

The IRS also released a one-page form and instructions small businesses will use to claim the credit for 2010.

“With tax time drawing near, we applaud the administration for issuing these guidelines now and allowing small businesses ample time to fully grasp the complexities of the credit, John Arensmeyer, CEO of Small Business Majority, an advocacy group, said in a statement. “These credits are crucial for small businesses struggling to provide their employees with health insurance. It’s imperative small business owners have clear, concise information about this and other provisions in the law that will help them gain access to affordable, quality healthcare coverage for themselves and their employees.”


Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.