Tax Consulting Experts advise Small Business Owners they can use the Small Business Health Care Tax Credit, among a host of other financial benefits, to offset mandatory increased insurance coverage for its employees as proscribed by the Affordable Care Act of 2010
“The mandatory increased insurance coverage for employees (for small companies) as proscribed by the Affordable Care Act of 2010 initially had many people worried,” says Marcus Rogers, a Tax Attorney with Tax Saving Professionals, a tax consulting company that has helped more than 7000 clients since 1998 save more than $500 million in taxes.
Rogers points out there has been significant creditable and non-creditable discussions regarding the Affordable Care Act (“Act“), passed by Congress and signed into law by the President on March 23, 2010. The majority of these discussions cover topics ranging from whether the act is even constitutional to the severity of the expected increase in insurance premiums for both employers and employees alike. As with many ratified forms of legislation, the Act is very lengthy and complex, encompassing 10 titles and over 2408 pages of what has been described as “entertaining text” from the certified full length version of the bill.
“Affordable Care Act”: Highlights At-A-Glance
In summary, the Act has a few main points, among many others, here are a few that can potentially affect tens of millions of Americans that were of great importance:
· Allows young adults to remain covered by parent health plans until age 26
· Ends lifetime limits on coverage
· Protects your choice of doctors
· Prevents insurers from arbitrarily withdrawing insurance, and offers certain rights to appeal.
Tax Credits for Small Business Owners
The Act also creates a tax credit for small business owners under Title 1, Subpart B, Part II section 1421 of the Act. Most small employers are unaware of how meaningful the tax credit can be to offset the increased cost of insurance. The IRS has issued an announcement on March 10, 2014, entitled “ IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, Tax Tips Available on IRS.gov ”
“Entrepreneurs and small business owners are likely to find not only useful information, but surprisingly potentially significant tax saving opportunities and financial benefits they may be eligible to receive,” says Rogers. Below, Rogers points out some further advantages of a close examination of the new code section IRC 45R.
Available Tax Credits & Filing Requirements
· For tax year 2014, the maximum amount will increase to 50% for small business employers. The credit is based on the amount of employer shared premiums paid on behalf of the employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) marketplace.
· On average, small employers that pay at least 50% of the insurance premiums of its employees will be able to take advantage of the credit whether at the maximum or scaled down rates assuming their annual wages do not surpass certain thresholds.
· Under IRC §45R, the credit is a general business credit and thus any unused credit amount can be carried back one year and carried forward 20 years.
· Small tax-exempt employers who are eligible for the credit can have the credit refunded to them in the event they do not have any taxable income.
“With these kinds of savings and overall benefits,” says Rogers, “small business owners should actively explore the opportunities available from these credits and the impact it can have on one’s tax liability.” While there are a surprising number of potentially valuable tax credits and cash-savings opportunities, one of the most important according to Rogers is the fact that many business owners simply are not aware of the fact that the credit can be carried back and/or carried forward.
Take the “Credit”: It’s Not Too Late
Lastly, for those eligible employers whom have not filed to take the credit, it is not too late to still take advantage of the credit. Small business owners should inquire with their CPA’s and/or attorneys to explore the amendment of their business tax returns. For instance, a small business owner who has not claimed the credit but who is eligible should file Form 8941 for the years in question. For example, if the small business owner pays $50,000 a year toward workers health care premiums and qualifies for a 35% tax credit, the small business owner may receive a tax credit of $17,500 for years 2010 thru 2013 for a total savings of $70,000. For tax year 2014, the maximum amount goes up to 50%, so assuming premiums stay constant the tax credit will by $50,000. For the current tax year, if clients have not already done so they should consider extending their tax return to allow them to have time to discuss with their CPA the applicable small business tax credit under IRC section §45R of the Internal Revenue Code as it may unveil significant tax savings.