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Form 8941 CPA answers FAQ about the tax Credit for Small Employer Health Insurance Premiums 2012

Form 8941 CPA TN VA SC NC

Gary Bode, CPA: blame Congress, not the IRS if you have trouble with Form 8941. For a free phone consult, please call (910) 399-2705.

Form 8941 seems complex because its calculations are complex. The IRS designs forms to accommodate the tax code as Congress dictates. The IRS is an easy target to blame, but if you look at their mission, Form 8941 is the best it can be. But any CPA that prepares Form 8941 would say clients have difficulty with it. Here’s a list of questions that I encountered most often during the 2012 tax season.

Can I have more than 10 employees?

Yes, the credit uses a Full Time Equivalent (FTE) to define the “number” of employees. So four 20/week workers, employed all year, count as two FTE. The calculation uses a 2080 hour work year and isn’t as simple as my example.

Can I have more than a FTE salary of $25,000 and still qualify?

Yes, but limitations kick in.

Why are there excluded workers?

I don’t know. Specifically, sole proprietors, partners, more-than-2% S corporation shareholder-employees, and more-than-5% C corporation shareholder-employees are excluded workers. An owner’s extended family, including in-laws and dependents, are also classified as excluded workers, and costs to cover them are also ineligible for the credit.

How come my tax credit isn’t the 35% I read about?

Most tax credits go through a multi step limitation process that progressively chips away the largest amount allowed. Form 8941 is typical. First you factor out excluded workers. Next some of the health care insurance your company paid might not qualify for the tax credit. Finally, once your company exceeds 10 FTE with an average FTE wage of $25,000 a complex, two tiered tax credit phase out begins.

I’m a small business CPA that prepares Form 8941. Our virtual office makes tax preparation for long distance clients convenient. So, if you don’t have a CPA, or like what you read on this website, don’t let geography limit your choices. Some local Wilmington NC CPA clients even use the virtual office. We offer a free phone consult: (910) 399-2705.

2 comments to Form 8941 CPA answers FAQ about the tax Credit for Small Employer Health Insurance Premiums 2012

  • Bruce Miller

    I am a Sub S corp. In tax year 2010 I didn’t make a profit. My CPA says I do not quilfy for the small business tax credit because I din’t make a profit.
    I qualify for for the eligibility requirments
    Could you please comment?

    • Gary Bode CPA admin

      Well, my first thought, based on the facts presented, is that you you probably should have paid yourself less, so there was a profit to claim the Credit on. And then taken out the rest of the profit as distributions not payroll. So you lost the Credit and paid payroll taxes on potential distributions. Planning for 2012 should help remedy a repeat.

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