New Summary of Tax Credits Released by the IRS

as submitted by Steven Kraus

The Internal Revenue Service has released a new summary of tax credits created by recent legislation that impact small businesses, including the new PPACA small business health insurance premium tax credit and the federal COBRA subsidies. The new summary Web page consolidates many of the IRS’ tax credit resources in one convenient location. “Because some of these changes are only available this year,” the IRS states, “eligible businesses only have a few months to take action and save on their taxes.”

In related news, many small businesses are taking issue with some of the fine print requirements that make it difficult for them to qualify for the small business health insurance premium tax credit program. In particular, there is confusion about language that prohibits business owners from counting employees who are also family members when calculating their credit.

In early April, the Obama administration sent a mailing to millions of small business owners promoting the PPACA federal tax credit worth up to 35% of what the company spends on health insurance for its workers, which is retroactive back to January 1 of this year. To qualify, businesses must have fewer than the equivalent of 25 full-time employees, have average annual wages of $50,000 or less, and cover at least 50% of the cost of health care for their workers. But what the promotional flyer and the White House fact sheet on the credit does not make clear is that that the credit can’t reimburse premiums paid for family members in family-owned businesses.

This requirement, which was designed to prevent fraud, only appears in a frequently asked questions section of a recently released IRS bulletin on the credit. It states that a family member of a business owner or the owner’s partner is not considered an employee for “the purposes of this credit.”

The prohibition on including the cost of even an extended family member’s premium if they are an employee will significantly reduce the credit’s value to many small employers, as it is extremely common for them to employ one or more relatives. The bulletin defines a family member as a child (or descendant of a child), a sibling or step-sibling, a parent (or ancestor of a parent), a step-parent, a niece or nephew, an aunt or uncle, or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

Steven J. Kraus
President
Kraus Resource Group
Human Resource Consulting
502-609-1427