Big Tax Breaks for Small Business
The new health-care laws offer incentives for employers who provide benefits for employees.
As an entrepreneur and small-business owner, didn't you get a little ticked off last year watching the big financial institutions get their bailouts? Didn't you want to say "Hey, what about me? What about small business?" I know I did.
Well, we finally get a hand. Congress recently passed two new tax laws that should provide an economic boon for small business. The first is a tax break included in the health-care reform legislation. The Patient Protection and Affordable Care Act is a health-care credit for small business. Yep, big business is excluded from this one, which represents a major score for entrepreneurs everywhere! It's about time we were afforded tax breaks to help us during these trying times.
And this one is an example of behavior modification at its best. The credit is designed to encourage smaller employers to provide health care for their employees. Here's how it works:
The maximum credit is 35 percent of premiums paid in 2010 by eligible small-business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small-business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.
It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.
The second tax break signed into law will help employers and possibly scale back the unemployment rolls. Enacted into law on March 18, 2010, was the HIRE Act (Hiring Incentives to Restore Employment), which provides relief from the employer's share of matching Social Security tax (6.2 percent of wages) paid on behalf of new hires who have been out of work for at least 60 days before beginning work or worked fewer than a total of 40 hours for someone else during the 60-day period. In addition, for each worker retained for at least one year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file 2011 income tax returns.
The employee must sign an affidavit certifying that he or she was unemployed during the 60 days (or employed for less than a total of 40 hours during that same 60-day period). The IRS is currently developing a form that employees can use to make the required statement.
If you hired a qualified worker during the first quarter of 2010, you have likely already paid the matching Social Security tax. Do not amend your Q1 Form 941 payroll tax return. If you haven't filed the return yet, do not attempt to take the credit on the first-quarter 941 form. The IRS is developing a new Form 941 to provide for the credit. You will simply take the credit on the new form for second quarter 2010. Household employers cannot claim this new tax benefit.
A final note: Included in the HIRE Act was an extension of the expanded version of Section 179 through December 31, 2010, which allows for a deduction in the year of acquisition of up to $250,000 of the cost of capital assets--depreciable property. You probably didn't know this, but that provision actually expired on December 31, 2009, and the prior law limitation was $25,000.
Bonnie Lee is the founder of Taxpertise located in Sonoma, Calif., a firm providing bookkeeping, payroll services, QuickBooks Training, income tax preparation and tax problem resolution including audits, offers in compromise and other representation issues. She is also the author of Taxpertise: The Complete Book of Dirty Little Secrets and Tax Deductions for Small Business the IRS Doesn’t Want You to Know (Entrepreneur Press, 2009).