By Harvey Amwake, C.P.A.

    Is your business eligible for the new small employer health insurance credit? Here’s how to decide, by the numbers.

     25. One of the requirements for meeting the definition of “small employer” is that 25 or fewer “full-time equivalent employees” worked for you during the year. To calculate full-time equivalent employees, you need the following two numbers: 1) The total hours worked by all your employees during the year (excluding seasonal workers and family members), which you’ll divide by 2) 2,080 (the maximum qualifying annual work hours, or 52 weeks x 40 hours per week).

 

Why bother with the special wording and the math? If some of your workers are on a part-time schedule, you could have more than 25 employees and still qualify for the credit.

     $50,000. A second requirement for meeting the definition of small employer: Paying average annual wages of less than $50,000 to full-time equivalent employees. Compute average annual wages by dividing total wages you paid during the year by the number of full-time equivalent employees. Wages paid to family members or to yourself are not included.

     50 percent. You have to pay at least half of the health insurance premiums for your employees. Note: Under a transitional rule available for 2010, you might qualify if you pay less than 50% of the premiums for certain employees, depending on the coverage.

    Do the numbers look good so far? If so, here’s one more.

     35 percent. The maximum credit you can claim is 35 percent of qualifying health insurance premiums paid during 2010. You’ll take the credit on your 2010 federal income tax return, using it to reduce your income tax liability dollar for dollar. The credit can be applied against regular income tax or the alternative minimum tax, and you can carry any excess to future years.

 

This article is for general information only and does not constitute financial advice. If you have any questions about financial matters, consult a professional tax adviser. Harvey Amwake, CPA, is a tax and small business consultant with the accounting firm of Arthur Spoon & Company, Ltd., at 1130 E. Missouri Ave., Suite 820. He can be reached at 602-264-6500 or by e-mail at Harvey@ArthurSpoon.com.