IRS issues guidance on tax credits for small businesses that offer health insurance

Published on July 01, 2010
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The Internal Revenue Service has released guidance on new tax credits available to many small businesses that offer health insurance.

The major federal health care legislation, the Patient Protection and Affordable Care Act, includes provisions to increase the numbers of businesses that offer health insurance and individuals who purchase health insurance. The legislation provides for tax credits to help offset the cost of offering health insurance at small businesses with fewer than 25 full-time equivalents with average annual wages of less than $50,000.

The IRS has sent postcards to millions of small businesses to alert as many as possible to the new tax credits. The agency released Notice 2010-44 on May 17 to offer guidelines and examples to assist small businesses with determining eligibility for tax credits, calculating the credits, and claiming the credits.

Tax credits are available to small businesses that pay at least half the cost of single coverage for employees. Small businesses can receive tax credits not only for regular health insurance but also for add-on dental and vision coverage.

For 2010-2013, the maximum tax credit is 35 percent of the employer's contribution to employees' health insurance premiums. The maximum credit is for businesses with 10 FTEs or fewer and average annual wages of $25,000 or less.

Additional information about the Affordable Care Act Tax Provisionsis available here. The site includes a three-step guide for determining eligibility, answers to frequently asked questions, and a link to IRS Notice 2010-44.

The IRS and Treasury Department are requesting input on additional topics to address in future guidance documents on the tax credits. The IRS will accept comments through Sept. 1 via e-mail at notice [dot] commentsatirscounsel [dot] treas [dot] gov, with "Notice 2010-44" in the subject line, and via mail at CC:PA:LPD:PR (Notice 2010-44), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.