Free Money! Figure Out How Much You’re Getting!

Okay, last week I told you about the small business health care tax credit and how you might qualify.  Well, this week our friends at the IRS and the Department of Health and Human Services have put out more guidance for us. 

If you qualify, the law states that you can claim the employer paid portion of premiums as long as you pay at least 50% of the total cost.  There is also a clause that caps the credit.  The law reads:

the amount…with respect to any eligible small employer is equal to 35% of the lesser of  1) the aggregate amount of nonelective contributions the employer made on behalf of its employees during the taxable year…for  premiums for…health plans offered by the employer…,  OR  2) the aggregate amount of nonelective contributions which the employer would have made during the taxable year…if each employee…had enrolled in a…health plan which had a premium equal to the average premium…for the small group market in the rating area in which the employee enrolls for coverage.

The Dept. of HHS has calculated that the average premium for the small group market in the state of Illinois is $5,198 for employee only coverage and $12,309 for family coverage.   If you live in a state other than Illinois, you can look at this helpful IRS document.

So here’s what that means for qualifying Illinois businesses. As an example, let’s say your business paid $80,000 of the total $100,000 in premiums (or 80%).  Also, let’s say that you had 10 employees making less than $25,000 (so you qualify for the full credit) and that 5 of those employees had single coverage and the other 5 had family coverage.  Your credit would be 35% of the lesser of 1)$80,000 (the amount you actually paid) or 2) $70,028 (80% of 5 x $5,198 plus 5 x $12,309).   At the end of the day, your business would get a credit of $24,509.80 (35% x $70,028).

Got that?  I know, the math can be confusing.  If you need more help, the IRS tries to help explain it here.  My advice — hire a good accountant.  That will probably run you, as an example, $24,509.80.

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