Reed Helps Small Businesses Claim New Health Care Tax Credit

Press Release

In an effort to help local small businesses save money and provide quality health insurance for their employees, U.S. Senator Jack Reed (D-RI) is highlighting the Internal Revenue Service's (IRS) new 3 step worksheet designed to help small businesses and non-profit organizations determine if they are eligible for a new health care tax credit for the 2010 tax year.

This new health care tax credit -- which was signed into law as part of the comprehensive health insurance reform bill -- is effective this year and is designed to encourage more small businesses to offer health insurance coverage for the first time, or maintain coverage they already have for their employees.

"It is important to get the word out that health insurance reform has made this new tax cut available to small businesses that provide health coverage for their employees and their families. This new form will help business owners determine if they qualify for the credit and how much credit to claim on their 2011 tax returns. Some businesses may not realize that they are eligible for a 35 percent tax credit of premiums this year, and non-profits may be eligible for up to 25 percent," said Reed, a member of the Health, Education, Labor, and Pensions (HELP) Committee.

To help Rhode Island business owners calculate their potential health care savings, the IRS also issued a draft version of the 8941 form that small businesses and eligible non-profits will use to apply for the small business health care tax credit when they file income tax returns next year. The final version of Form 8941 and its instructions will be available later this year.

Small businesses pay an average of about 18% more than large firms for the same health insurance policy.

"Small business men and women want to provide health coverage for their employees, but as health care costs have sky rocketed over the last several decades, the number of Rhode Island small businesses which have been able to provide that coverage has dropped. Currently, approximately 15 percent of the state is uninsured. We need to change that. When the new health exchange takes effect in 2014, more small businesses will be able to compete and negotiate discounts with the insurance companies the same way big companies do. In the near term, we need to make sure all Rhode Island businesses are receiving the new tax credits and utilizing the new assistance provided under the new health reform law," said Reed.

In 2010, the credit is generally available to small employers who contribute an amount equivalent to at least half the cost of health insurance premiums for their employees.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.

The maximum credit goes to smaller employers -- those with 10 or fewer full-time equivalent (FTE) employees -- paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply on the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available at: healthcare.gov.

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