If you're a small business owner and you offer employee health care coverage, the IRS would like you to check out the Small Business Health Care Tax Credit. Although this was part of 2010's Affordable Care Act, small businesses have been slow on the uptake. A September 2011 report by the Treasury Inspector General for Tax Administration found that just 228,000 small businesses had filed for the credit as of May 2011. That's out of up to 4.4 million taxpayers who might have qualified.
What businesses potentially could claim it? The credit is available to small employers that cover at least half of the premiums for single (not family) health care coverage for each of their employees. In addition, the business must have fewer than 25 full-time equivalent employees, who have average wages of less than $50,000 annually, the IRS says. For small business employers, the top credit is 35 percent of the premiums paid; it's 25 percent for tax-exempt groups. For many taxpayers, these rates will jump Jan. 1, 2014 to 50 and 35 percent, respectively.
The report cites several reasons for the credit's lack of popularity. One is the time and effort required to complete the paperwork needed to claim it. Some taxpayers found the forms confusing, or couldn't easily pull together the info they'd need to complete them. And of course, business owners that don't offer health insurance wouldn't qualify for the credit in the first place.
In its efforts to boost use of the credit, the IRS has revamped its website to provide more—and more easily understood—information on the credit. You can watch a YouTube video on the credit, review a Q&A, listen to a webinar, or work with a widget.
Interested? If so, you'll want to make note of several deadlines highlighted on the IRS' website. As of March 15 corporations filing on a calendar year basis can figure the credit using Form 8941, Credit for Small Employer Health Insurance Premium, and claim it as part of their general business credits on Form 3800: General Business Credit. Both these forms are attached to the companies' income tax returns.
Individuals, including sole proprietors and taxpayers who receive business income reported on Schedule K-1, have until April 17 to complete and file their returns; they use Form 1040. They'll also attach Forms 8941 and 3800 to their return. The resulting credit is entered on Line 53 of Form 1040.
And, tax-exempt organizations that file on a calendar year basis have until May 15 to file. They'll use Form 8941 and then claim the credit on Line 44f of Form 990-T: Exempt Organization Business Income Tax Return.
If you've already filed for 2010 and 2011 but find that you would have qualified for the credit, you can amend your return(s) to claim it. Corporations use Form 1120X; individuals Form 1040X; and tax-exempt organizations, Form 990-T.