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New 35% Premium Subsidy
Hi All,
Effective immediately the health care reform plan provides tax credits to certain small businesses or "qualified employers" that offer health insurance to their employees. Businesses employing less than 25 full-time employees (FTE's), and paying an average annual wage of less than $50,000 per year may be eligible for this credit (or part of it). This credit is claimed on the employer's annual income tax return.
There are some qualifications, but the rules aren't too complex. We would be happy to visit with any client to explain this further.
- First: The employer must pay at least 50% of the single employee rate. The premium amount that counts towards the credit is the employer's share of the cost and the lesser of the actual premium paid, or the average small group premium in our state. The Department of HHS will calculate the average premium on a state by state basis and publish the results on their web site by the end of April.
- Second: The employer determines how many full-time employees they have. Owners and family members of owners do not count. There is a phase out of the credit for groups of over 10 employees reducing to zero at 25 employees. To calculate the number of full-time employees, take the total number of employees working 40 or more hours per week + calculate hours from part time employees/ 2080. The easier method might be to calculate the paid hours during the year and divide by 2080. Round down to the nearest whole number. You do not need to count more than 2080 hours for any one employee.
- Their Example: In 2010 5 employees work 2080 hours, 3 work 1040 hours, and one works 3120 hours. The 5 employees count 2080 hours each (full-time), each of the 3 part time employees is counted as a half (1040 is half of 2080), then count 2080 hours for the employee that worked 3120 hours. Total of 15,600 hours divided by 2080 =7.5 employees. Rounded down = 7 FTE's.
- Third - Determine the average annual wage by taking the total wages paid to employees during the tax year and dividing by the number of full-time employees. The wages of owners and their families are not included in this calculation. There is a phase out of the credit for groups paying over $25,000 average reducing to zero at $50,000.
If the number of FTE's is over 10 or the average annual wage exceeds $25,000, the amount of the credit is "phased out" according to a formula. An employer with more than 25 employees may still qualify for the credit if some of the employees are part time or are owners. Neither the hours nor wages of owners and their families are considered when calculating the number of FTE's or average wage. Owners' families are considered the owners' household members including: children (and their children), parents (or ancestor of a parent), siblings (and their children) or in-laws.
Attached is a link to the IRS web site for more information including an explanation for calculating the "phase out" portion of the credit. While we cant provide tax advice, we'd be happy to discuss this with any of our clients now or at your next renewal. Please be sure to talk to your tax professional if you think you may qualify for this credit.
Thank you again for your business!
Managed Benefit Systems, Inc.
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