Last week the IRS started sending out more than 4 million postcards to employers identified as potentially eligible to take advantage of the tax credit for providing health benefits under the Patient Protection and Affordable Care Act (PPACA). Since the credit begins this year the campaign is designed to catch the attention of small businesses to learn more and see if they can gain some savings.
The details of this component of PPACA have been settled and published by the IRS:
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
Maximum Amount. The credit is worth up to 35 percent of a small business’s premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
More than 500,000 of the postcards went to California employers while the smallest total, less than 12,000 were sent to Alaska. The cards provide an introduction to the health reform credit but there will certainly be many questions. A good start to identify eligibility is an IRS created chart, 3 Simple Steps that allows employers to respond to questions and fill in the blanks in a formula.
While it may be tough to meet all the criteria for the Health Reform Tax Credit if you are a small employer it is worth a few minutes to respond to brief questions that might lead to a tax break. Your tax professional should also be able to fill you in on the valuable incentive. This is one postcard from the IRS that brings only potential good news.