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How you can qualify for the small business health insurance tax credit?

By Mary Lou Jay

Did your small business receive a postcard from the IRS during 2010? It could be good news — you might be eligible for a tax break.

The IRS postcard relates to the Small Business Health Care Tax Credit. The credit is part of the health care reform law that President Obama signed in March 2010. Under the new law, small employers that help pay for their employees’ health care insurance may qualify for a tax break of up to 35 percent of those costs. To qualify for the full tax credit, a small business must:

  • Have 10 or fewer full-time employees two or more part-time employees might count as one full-time employee).
  • Pay average taxable wages of $25,000 or less.
  • Cover at least 50 percent of the health insurance costs for employees.

Small businesses may be eligible for phased-in credits if they 11 to 25 employees, or if the average taxable wages for employees range from $25,000 to $50,000.

Although the primary beneficiaries of the tax credit are for-profit businesses, small nonprofit organizations may qualify for some relief as well. The tax credit for nonprofits that meet the criteria is limited to 25 percent of the employer’s contribution for health care premiums, however.

These tax breaks will be available from tax years 2010 through 2013. In 2014, a bigger tax credit will be available for two years — up to 50 percent of the costs of health insurance premiums for small businesses that meet the criteria and up to 35 percent for small nonprofits, according to There’s currently no provision for a health care tax credit after 2016.

If you’re eligible, you’ll need to fill out and file the new IRS Form 8941 to get the credit.

The Small Business Health Care Tax Credit could mean big savings for U.S. employers. The U.S. Council of Economic Advisors estimates that four million small businesses will qualify for this tax break, and the Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.

How much could your business save?

The IRS gives an example to show the savings for small employers who take advantage of the tax credit. A company with 10 employees and a total payroll of $250,000 averaging $25,000 per worker) pays $70,000 for employees’ health care coverage. With the tax break, the company will receive 35 percent of that amount — $24,500 — as a tax credit from 2010 through 2013, then $35,000 in tax credits for 2014 and 2015, when the rate is 50 percent.

For more information to determine if you qualify for this tax credit, you can visit the special websites that have been set up by the White House and the IRS.

See how much you could save today on your insurance. Get your free business insurance quotes today!

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