Sen. Carper Highlights New IRS Form to Help Small Businesses Claim New Health Care Tax Credit

WASHINGTON — Today Sen. Tom Carper (D-Del.) highlighted the Internal Revenue Service’s (IRS) recently released worksheet designed to help small businesses and tax-exempt organizations determine whether they are eligible for the new tax credits. The IRS also issued a draft version of the form that small businesses and tax-exempt organizations will use to apply for the small business health care tax credit when they file income tax returns next year. 

Additionally, the IRS announced how eligible tax-exempt organizations — which do not generally file income tax returns — will claim the credit during the 2011 filing season.  As a member of the Senate Finance Committee which oversees federal tax policy, Sen. Carper helped push for support for small businesses to meet their growing health care costs as part of comprehensive health reform.  The small business health care tax credit was ultimately included in the Affordable Care Act supported by Sen. Carper and signed into law by President Obama in March.  The tax credit is effective this year and is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

"I often hear from small business owners in Delaware about how challenging it is to secure affordable health insurance for themselves and their employees," said Sen. Carper. "In fact, in the last several years, fewer than 50 percent of small businesses provided health insurance to their employees.  Premium costs continue to rapidly rise and until the insurance exchanges begin, small businesses can’t negotiate the discounts given to large group plans.  As we work to make health insurance more affordable and accessible for all Americans, it’s important that we provide small businesses with the support they need to provide coverage for their employees.  These tax credits for small businesses will help that effort and I encourage all small businesses to utilize this new assistance provided under our comprehensive reform bill." 

The IRS has posted a draft of Form 8941 to this website.  Both small businesses and tax-exempt organizations will use the form to calculate the credit.  A small business will then include the amount of the credit as part of the general business credit on its income tax return. 

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T.  Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income.  Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations — even those that owe no tax on unrelated business income — also to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later this year. 

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. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

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 on the Affordable Care Act website.