Small Business Tax Credits

Who is eligible for the Small Business Tax Credit?

Employers are eligible if they have 25 or fewer full-time equivalent employees AND average wages are less than $50,000 AND premium sharing meets certain standards (generally 50% of the health plan cost for employees). Refer to the IRS step by step guide to calculating eligibility for the credit for more information on this topic.

Are non-profits eligible?

Yes, non-profits may receive a small business tax credit against payroll taxes up to 25% of the tax-exempt employer’s payment for employee health care for 2010-2013, and up to 35% for 2014-2015. The credit will be applied against payroll taxes but special rules do apply. For non-profits the amount of credit cannot exceed the total amount of income and Medicare (i.e., hospital insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages. To claim the credit, use IRS Form 990T.

What should I do if I think I may be eligible for the credit?

The credit is available beginning in tax year 2010. The IRS has developed specific guidance on calculating the credit, determining full time equivalents and average wages, qualifying arrangements, and other specifics. If a chapter thinks it may be eligible, it should carefully review the IRS guidance on the issues: Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance.