Obama administration provides additional guidance on tax credits for small businesses

The Obama administration on Thursday issued additional guidance designed to make it easier for small businesses that provide health insurance coverage to their workers to claim a tax credit. 

The latest update clarifies which firms qualify for the new tax credit available this year, including for-profit and nonprofit organizations and those employers that pay a portion of employees' healthcare costs through a broad range of contribution arrangements, religious institutions and certain smaller businesses that cover their workers through multi-employer health plans, according to a release from the Treasury Department. 

This year, small businesses with fewer than 25 employees paying average yearly wages below $50,000 that pay for most of their employees’ health coverage may qualify for a tax credit of up to 35 percent of health expenses.   

The nonpartisan Congressional Budget Office (CBO) estimates that the tax credit will save small businesses $40 billion by 2019. 

Starting in 2014, firms with up to 100 workers can purchase insurance through a health insurance exchange, which the CBO predicts will lower premiums in the small group insurance market by 1 to 4 percent by 2016.

More detailed guidance provided by the Treasury:

• Information and Form 8941 with instructions to claim the tax credit is available at www.irs.gov.

• Due to the special status of religious institutions under other laws, those that obtain coverage through a denominational organization that self-insures the coverage can qualify for the credit, even though the coverage is not fully insured, a requirement for most employers. The guidance makes clear that this rule applies solely for purposes of eligibility for the small business tax credit.

• A broad range of common arrangements used by employers to subsidize insurance coverage for their workers will qualify for the credit for tax years 2010 to 2013. For example, firms that pay more to help older workers cover the higher premiums and firms that allow employees a choice of coverage may qualify for the credit.  

• The guidance provides that a small employer that makes contributions to a multi-employer plan that is used to pay premiums for employee health insurance coverage may qualify for the credit, so long as 100 percent of the cost of coverage for all employees covered by the multi-employer plan is paid from employer contributions and not by employees.