IRS Ruling on Tax Credits for Small Firms Providing Health Insurance Coverage
The IRS has ruled that the credits 20 states give to small employers for paying their employees’ health care insurance costs do not have to be considered in calculating the federal tax credits available to some small employers for providing coverage under the Small Business Health Care Tax Credit. Employers with fewer than 25 full-time employees (full-time is defined as working for more than 120 days per year at 30 hours per week), may be eligible for tax credits if the following qualifications are met.
- A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
- Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
- Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Amount of Credit
- The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
- Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
There are a number of other qualifications and exclusions in calculating the FTE’s that have to be taken into consideration, so we strongly suggest that you consult with your accountant to see if you qualify. IRS has a webpage to help you determine if you qualify for the tax credits. The webpage for an overview of the tax credit may also be found by clicking Here.
AOA surveys show that more than half of the AOA membership is concerned about the rising costs of health insurance. Larger employers with more than 50 full-time workers (those working more than 120 day per year) have also expressed concern to AOA about the fines imposed on their operations for not providing coverage to seasonal employees. We intend to have an expert at AOA’s Marketing and Management Conference to provide an overview of the phase-in of the Patient Protection and Affordable Care Act’s benefits, mandates, and employee reporting compliance issues.
Hire Act Payroll Tax Holiday
As AOA previously reported, some companies may also qualify for the payroll tax holiday available to small businesses under The Hire Act for hiring previously unemployed workers. Employers must use Form W-11, which is an affidavit regarding the new hires' previous employment status. Employees must use the form to verify that they have been unemployed or have not worked for anyone for more than 40 hours during the 60-day period ending on the date employment began with the current employer.
Status Report on New Tax Form Filing Requirements
Much has been made about the new requirement to expand the requirement to file 1099’s for any payment exceeding $600 to corporations or other entities for goods or service purchased in the course of business. The change eliminates the corporate exemption for 1099 filings. The new 1099 reporting requirement was included in the Patient Protection and Affordable Care Act, which passed in March. The requirement will begin with the 2012 tax year. Businesses will be required to keep track of their purchases and payments of more than $600 to all vendors and service providers under each payee’s FEIN to complete the filing requirements. Computers, office supplies, food purchases, travel purchases and similar expenses to a payee exceeding $600 in a calendar year will have to be reported. Many business may have a challenge getting the FEIN from an internet based reservation system. There is some question whether purchases by credit card that are reported under the 1099-K, which goes into effect January 1, 2012, will be excluded from the new 1099 reporting requirement. The1099-K reporting requirements are much more limited than the new 1099 reporting requirements. Consult with your accountant on this issue and which records you should keep to prepare for these filings. You have time to prepare for this new requirement since it takes effect in 2012, although the 1099-K reporting begins in 2012, so you’ll have to begin keeping records next year for the 1099-K, including the payee's FEIN and address.
The 1099-K filing requirement for credit card purchases passed Congress in 2008. CNN Money reports that “the 1099-K is only required when a merchant has at least 200 payment transactions a year totaling more than $20,000. This reporting will be required in January 2012, so in 2011 you will need to begin keeping records if you meet these threshholds.The goal of these filings is to find additional tax revenue that is currently not being reported. These provisions, according to CNN Money, have been in the works for a while. The health care reform bill became a convenient vehicle especially since one of the strategies to pay for the bill was to close tax loopholes.
IRS reportedly is auditing 6,000 small businesses to determine if they are dodging payroll taxes by misclassifying employees as contractors. The IRS briefing on the employee classification issue can be found at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
A bill to repeal the new 1099 reporting requirement in the Patient Protection and Affordable Care Act has been introduced in Congress (H.R. 5141). The bill has 63 co-sponsors, but insufficient bipartisan support to pass prior to taking effect unless more support can be generated.
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