Academic journal article Journal of Accountancy

Health Care Business Credit Explained

Academic journal article Journal of Accountancy

Health Care Business Credit Explained

Article excerpt

The Ins issued guidance to small businesses on claiming the new tax credit for employee health insurance coverage. The credit under new IRC [section] 45R is a key provision of the Patient Protection and Affordable Care Act (PL 111-148) enacted in March. Generally, small businesses-defined as those with 25 or fewer employees and average annual wages of less than $50,000--are eligible. When fully phased in (after 2013), the credit amount is up to 50% of nonelective contributions the business makes on behalf of its employees for insurance premiums. A nonelective contribution is one an employer makes that is not pursuant to a salary reduction arrangement (section 45R(e)(3)). Tax-exempt organizations would get a 35% credit against payroll taxes.

Notice 2010-44, released in May, provides a procedure by which employers can determine their eligibility for the credit and instructions with examples of how to calculate and claim it (as a general business credit). The notice also provides transition relief for 2010 with respect to certain qualifying arrangements. The Service said it would issue further guidance later for tax-exempt employers on how to apply the credit against payroll taxes.

Earlier, the Ins provided on its website questions and answers (tinyurl.com/ ybhjfmz) about the credit and issued average small group market premiums for use in determining it (Revenue Ruling 2010-13).

This credit is available for tax years beginning after Dec. 31, 2009, and is phased in during 2010-2013. In the phase-in years, the maximum credit is 35% of the employer's eligible premium expense (25% for tax-exempt employers). …

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