Beginning in 2010 the IRS began releasing Form 990-T as a draft for discussion for small businesses and tax-exempt entities regarding calculation of health care tax credits. This form, when finalized will be used for correct calculations which are then to be reported to the IRS. It is expected that tax-exempt entities will start using the form by the time 2011 tax reporting comes due.
In addition to Form 990-T, Form 8941 is to be used as a worksheet to determine the appropriate tax credit applicable to a small business or tax-exempt group. Then, with the credit identified, the number gets included with the overall business credit claimed when the business or group files its annual income taxes.
The health care tax credit is expected to be used in a widespread manner. Tax-exempt organizations will use it for reporting and calculating payments due on non-exempt income which may occur from time to time. Even groups who may have no taxable payments due or any taxable income can still use the form to file for the small business health care tax credit.
The authorization for the small business health care tax credit was enacted via the Affordable Care Act which was signed into law during early Spring 2010. The intent of the credit was to give small business employers some return for going through the effort of providing health insurance benefits to its workers or for continuing it.
All small businesses that employ can get the credit if they contribute a monetary benefit that covers at least 50 percent of the expense of health insurance for workers. This credit is only available to small businesses and tax-exempt organizations with middle to low-end income pay levels.
The credit calculation in the first three years through the 2013 tax year of eligibility will equal 35 percent of what was paid by a business for applicable insurance premiums. For tax-exempt organizations, the credit is a bit smaller at 25 percent for the same period. In 2014, the credit increased to 50 percent of payments and lower 35 percent for the tax-exempt groups. This second phase will last until 2016.
For businesses with 10 or less employees working on a full-time basis, the business automatically gets the maximum credit amount. However, those businesses with more than 25 full-time positions or with positions earning more than $50,000 annually, the credit is off-limits. Given this income options, those who have part-time employees may be able to aggregate their numbers to be eligible even if they have more than 25 employees total. Much depends on how “full-time” is defined.