Have you heard about the tax credit for the new Health Care bill? Do you now have a ton of questions about it and, for that matter the bill itself? I had a few questions myself, so I started researching it, knowing that you, my valuable clients, would want answers. While I don't have all the answers yet, here are some basic points that might help you start a conversation with your CPA or tax accountant.

There are two demarcation points: employers with 25 employees and less and employers with 50 employees and less. The rules and requirements change at these points. By the way, the number of employees you have is not determined by how many warm bodies are at your business. It is calculated by the number of total hours everyone works during the year, which is then divided by 2080. This way, part-timers are included with full-timers to give you a number known as Full-Time Equivalency.

Ok, back to the tax credit. Unlike a deduction that only reduces the amount of your taxable income, a tax credit directly reduces the amount of tax you owe. As small business owners, we're all interested in reducing the amount of tax we owe, right? This tax credit is targeted to help businesses (and even tax-exempt organizations) that employ low to moderate-income workers-a dollar figure which is set at less than $50,000 per year per person. The catch is that you need to have 25 or fewer FTE employees in order to qualify for the credit. (Since this is based on FTE, some businesses with more than 25 employees may qualify if they have a fair share of part-time employees.)

The tax credit is on a sliding scale that takes into consideration the percentage of health insurance premiums you are paying for your employees as well as how many FTE's you have. Here's another point: you have to be paying at least 50% of the premiums for your employees in order to take advantage of the tax credit.

So let's assume that by now, you are qualifying for the Health Care bill's tax credit. How much credit can you take? The maximum amount you can claim in 2010 is 35% of what premiums you paid. And although the tax credit is available to all small businesses as described above, the 35% maximum credit is only available to employers with 10 or less FTE employees who earn an average of $25,000 or less each year. In the year 2014, that maximum will increase to 50% of the premiums you paid.

Some analysts estimate that only about 12% of small businesses will qualify for the tax credit. These same analysts surmise that this new law and the difficulty in qualifying for the tax credit will have an effect on the hiring decisions of small businesses. Many might conclude that it would be better to stay small and not hire anyone new. Others might think that they need to trim back. Or, they might re-examine hiring employees in favor of use independent contractors (1099 employees).

My advice to you is, don't make these decisions without expert help. Talk to your CPA, a tax attorney, and/or your insurance broker.  If you do not have one, I would be happy to refer you to one.  At the very least, talk to me before you make any changes concerning your employees. I'm here to help.