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The information in this e-newsletter is for general guidance only, and does  not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind.  The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.  Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose.  This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.  
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
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The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.  
Serving the Central Pennsylvania area since 1981
Robert A. Romako, CPA
Small Business Tax Credit for Health Insurance

The health care legislation signed into law earlier this year was a massive piece of legislation.
Rather than trying to recap all the provisions, it is perhaps more easily digested by reviewing only
those provisions applicable to the current or upcoming year. Over the next few years, this
newsletter will feature additional articles on those aspects. But, for 2010, let’s take a look at the
special tax credit for businesses that provide health insurance to their employees.

Beginning in 2010, qualifying employers that offer health insurance to their employees may
qualify for a tax credit. For 2010 trough 2013, the maximum credit is 35% of the employer’s
premium expenses. For 2014 and thereafter, the maximum credit increases to 50%. So, this could
be a big deal for your business!

To be eligible for the credit, the following conditions must be met:

•        An employer must have less than the equivalent of 25 full-time employees for the tax year.
This is determined by dividing total employee hours by 2,080.
•        Average annual wages must be less than $50,000. This is calculated by dividing total
wages paid during the tax year by the number of full-time employees calculated above, then
rounding down to the nearest $1,000.
•        The employer must pay at least 50% of the premium cost of the health insurance plan
offered to its employees.

The maximum credit is earned by employers having 10 or fewer full-time employees whose
average annual wages do not exceed $25,000. The credit is phased down for employers having
between 10 and 25 employees, and for those whose average employee earnings fall between
$25,000 and $50,000.

The credit is not available for businesses having more than 25 full-time employees. Similarly, sole
proprietors, partners, 2% shareholders in S corporations, and 5% or more owners are not eligible
employees for the credit. In addition, family members of ineligible employees cannot be counted
as employees.

Finally, the total premiums paid by the employer cannot exceed the average premium for the
small-market group for the employer’s state. For 2010 in Pennsylvania, those rates are $5,039
for single coverage and $12,471 for family.

The credit is claimed as a “general business credit” on the employer’s annual tax return. A
general business credit offsets corporate income taxes for a regular “C” corporation; unused
credits can be carried back 1 year or forward for 20 years. For other types of entities, the credits
will pass through to the partners, shareholders or owners to be claimed on their personal income
tax returns. Nonprofit organizations can use the credits to offset tax on their unrelated business
income.

For 2010, you will need to supply the following information to your tax preparer in order to
calculate the amount of credit you may be entitled to claim:

•        Total hours worked for the tax year by all employees. This is calculated as either:
      1.        Actual hours worked, including hours paid for paid vacation, holiday and sick pay
     2.        Days worked equivalency, deemed to be 8 hours for each day in which the employee
                 is paid for at least 1 hour of service
     3.        Weeks worked equivalency, whereby the employee is credited for 40 hours of service
               for each week in which the employee is paid for at least 1 hour of service.

•        Total wages paid for the tax year (this is defined as equal to the W-2 Medicare tax
        wages)
•        Number of employees covered under single-individual coverage
•        Number of employees  covered under family coverage
•        Single-employee annual premium rate
•        Family coverage annual premium rate

Premiums include amounts paid for medical care, vision, dental, long-term care, nursing home
care, and any premiums paid for special coverages (such as cancer insurance).

Because the data required is both detailed and extensive, I suggest you put mechanisms in
place now to capture this information, rather than scramble at tax filing time to create the data.

The health insurance credit can, under the right circumstances, subsidize the cost of medical
insurance by up to 35%, and by 50% in 2014. Please call me to discuss how this valuable
tax credit may apply to your business.
SEPTEMBER 2010 NEWSLETTER ARTICLE
Robert A. Romako, CPA
          
220 Haldeman Avenue
New Cumberland, PA     
717.774.3047