IRS Provides Guidance For Small Business That Qualify For the New Healthcare Tax Credit
IRS Notice 2010-44
The IRS, on May 17, 2010, released Notice 2010-44 as new guidance for small businesses in determining to what extent they are eligible for the new health care tax credit under Section 45R that was enacted as part of the Affordable Care Act, that was signed into law on March 23, 2010.
Section 45R provides a federal income tax credit for eligible small employers, including tax-exempt organizations, that make nonelective contributions towards their employees’ health insurance premiums. An "eligible" employer must have fewer than 25 full time equivalent (FTE) employees for a tax year; the average annual wages must be less than $50,000 per FTE and the employer must maintain a "qualifying arrangement" as defined in the Notice. Notice 2010-44 provides guidance for tax years beginning prior to January 1, 2014 and transition relief for tax years beginning in 2010. The Notice outlines steps which must be met in order to qualify for the credit. The credit is not reduced by the value of available state healthcare credits. The credit is available for limited scope health insurance programs such as dental and eye care where the employer provides at least 50% of those benefits. There are three methods set forth in the Notice for computing how many FTE employees the business has.
It should be noted that while the guidance was needed and is generally favorable, it is complicated in its content, including required calculations of FTEs.
