IRS Releases Small Group Tax Credit Examples

The Internal Revenue Service has come out with guidelines for small commercial and nonprofit employers that want to take advantage of a new health insurance tax break.

The small employer health insurance tax credit guidelines, given in IRS Notice 2010-44, include examples that can help employers and their benefits advisors determine whether the employers are eligible for the tax break, and exactly how much of the new federal health insurance tax credit the employers can claim.

The IRS first began publishing information about how it will implement the small group health insurance tax credit here.

Calculating exactly how small an employer is for tax credit purposes will depend partly on the definition of “full-time equivalent” employee, officials write in the notice.

“In general, employees who perform services for the employer during the taxable year are taken into account in determining the employer’s FTEs, average wages, and premiums paid,” officials write.

But “partners in a business and certain owners are not taken into account as employees,” officials write. “Specifically, sole proprietors, partners in a partnership, shareholders owning more than 2% of an S corporation.

Owners and partners need not count family members or other dependents who are members of their households as employees when they are trying to qualify for the tax credit.

Season workers count toward the FTE total only if they work for an employer on more than 120 days during the taxable year.