Small Business Tax Credit

If you are a small business or a tax-exempt organization that pays at least half the cost of single health insurance coverage for your employees you may qualify for a new tax credit that can be applied for the 2010 tax year.

On Sept. 30, 2010, the Governor signed AB 1602 (Speaker John A. Pérez) to create the California Health Benefit Exchange which will allow individuals and small businesses to claim federal tax credits for health insurance.

While many of the benefits from the Exchange won’t take effect until 2014, the federal small business tax credit is effective now.

Who’s eligible for the new federal tax credit?

The tax credit is targeted to help employers with low- and moderate-income workers who can afford to offer employees health insurance coverage. Generally, employers that have fewer than 25 full-time equivalent (FTE) employees and pay wages averaging less than $50,000 per employee per year may qualify for the credit. The eligibility formula is based in part on the number of FTEs, not the number of employees. Employers that have more than 25 individual workers may also qualify if some of their workers are part-time.

How much is the credit?

For each year from 2010 through 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. An enhanced version of the credit will be effective beginning 2014.

How and when can I claim the credit?

Small businesses can claim the credit starting with their 2010 income tax return. Tax-exempt employers can expect additional information in the coming months on how to claim the credit.

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