Now lets look at the new Small Employer Health Insurance Tax Credit (IRC Sec. 45R, Health Care Act Sec. 1421). This tax credit is based on the Health Insurance Premiums that qualifying small businesses (including for-profit and tax-exempt organizations) pay on behalf of their employees. Typically a business will qualify as a small business if it consists of no more then 25 full-time equivalent employees (FTE), whose average wages are not more then $50,000. To be entitled to claim the Small Employer Health Insurance Tax Credit, the business must also offer a qualified healthcare plan, and pay at least 50% of the premiums on behalf of all employees enrolled.4

    Please note that not all Healthcare Plan Premiums will qualify for all or part of tax credit. For instance self-employed individuals, partnerships, sole proprietors, 2% S-Corporation shareholders, 5% employer owners, and their dependents are not considered employees under [IRC Sec. 416(i)(1)(B)(1) & IRC Sec. 45R(e)(1)]. Therefore contributions made by the employer for health insurance on behalf of these individuals are not eligible for the tax credit, and the individuals cannot be used in factoring the FTE or average wages for the company.5

    So how much is the credit? Well the credit is up to 35% (25% for tax-exempt employers) of either the small business' premium costs during the tax year, or 35% (25% for tax-exempt employers) of the benchmark for small business premiums as will be set by the IRS each year.6 7 

    As you are probably more than well aware, there are some major changes about to take place as a result of the Healthcare Reform Legislation which was passed into law this past March 2010.  Love it or hate it, there is no way to avoid it. So let’s take a brief moment and review some of the legislation highlights that are most likely to affect or concern you as an individual taxpayer or small business owner. Specifically, the extension of Dependent Care Coverage, the Small Employer Health Insurance Tax Credit, and the uber-mysterious W-2 Health Insurance Cost Reporting.

    The Last important element of Healthcare Reform for us to review, and perhaps one of the most misinterpreted, is the reporting requirement of Health Insurance costs on Employee W-2s. Beginning in 2011 employers will be required to report on the employees W-2 form the value of the Health Insurance Coverage they are providing; excluding the amount of an employees elective contributions to special programs such as a Health Flexible Spending Arrangement.8

    Ok? So what does that mean? Does that mean that we are now required to pay taxes on the reported value of our Health Insurance Coverage? No! Despite any emails you may have received to the contrary (and there are several scary ones going around) it does not mean that. The value will continue to be untaxed just as before.9  The IRS states in their aptly named new release: Employer-Provided Health Coverage — Not Taxable, that:

1. 1.           

      1. 1. Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable.10

      
      

2. The new reporting requirement is just that, a reporting requirement; so if you have received any of these doomsaying emails regarding the “amount being added to your gross pay”, kindly direct the friend who sent it to you to the IRS website article about the matter, delete it and move on.  And if you have already forwarded it to “everyone you care about” maybe you could give them a little corrective heads up on the matter. 

    Well, that’s all I’ve got for now. I hope you have learned something. I sure did, and I’m certain we will all continue to learn new things as the discussion regarding Health Care Reform continues to evolve. Just remember, there is a lot of hype out there, so if you are not sure about something someone is telling you, don’t be afraid to question the source and do a little “Fact Checking”.