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Small Business CPA discusses Health Insurance Tax Credit | 2013 Form 8941

CPA Firm in New Hanover County NC: tax accountants

Gary Bode CPA: the health insurance tax credit should just be one of many factors in your company’s tax positioning. If you’d like a free initial consult, please call (910) 399-2705.

The Health Insurance Tax Credit, is a hot small business tax issue.  If you didn’t qualify to use Form 8941 in 2012, maybe you can structure your company’s health insurance benefits so you do qualify in 2013.  As the government mandates citizens to buy health insurance, there will be increasing pressure to offer it as an employee benefit.  So a small business tax break is provided by the IRS as a social incentive.  Here’s a post on Form 8941 preparation.  We know Romney can’t repeal Obamacare.  But States are still suing the federal government about it. Very exciting, LOL. CPA chatter says many small business owners who qualify to file Form 8941 don’t. Why? They feel Form 8941 is too complicated and the actual credit is too small. Form 8941 does progressively whittles down the credit amount. But it’s worth filing.

The three primary factors for Health Insurance Tax Credit eligibility are roughly sketched below.  As with all IRS small business tax credits, there are a myriad of details.  So consulting with your CPA or tax accountant is prudent.

  1. Company must have no more than 25 Full Equivalent Employees (FTE).  Here you just add the total hours worked by full and part-time employees for the year, then divide by 2080.  So this is truly a small business tax break.
  2. Less than $50,000 average salary per FTE.  This is just the total wages paid to included employees for the year, divided by the number of FTE(s) as calculated above.
  3. Company must pay at least 50% of the health insurance premium for those enrolled.

This may sound complex, and there are lots of details, but the actual numbers can be pulled off your payroll processing reports and health insurance bills.  Then you can use Excel to create multiple alternative scenarios to eval all your options.  Sometimes intangible factors must be considered too, like the benefit of employee retention, or conversely, the cost of employee attrition.

We feel last year’s tax preparation is just a stepping stone to this year’s tax positioning. If you’d like a free initial consult with a small business CPA firm offering more than just tax preparation, please call us at (910) 399-2705.

Amount of Health Insurance Credit

The Health Insurance Tax Credit amount is based on the lesser amount of:

  • Actual qualifying premiums paid, or,
  • The IRS determined standard rate for rate for your State

2012 Limits

“For profit” businesses (Schedule C on IRS Form 1040, Form 1065, Form 1120 and Form 1120S) are allowed 35% of that amount.  Non Profits (Form 990) are allowed 25%.

2013 Limits

These allowable percentages increase in 2013 to 50% and 35% respectively.  Again, this is a great small business tax break.  Health care insurance is a major employee incentive.

Small Business Tax Positioning

There is seldom just one dramatic issue that affects your tax liability.  Usually, multiple tax strategies are in play, all of which have to make financial sense to your company individually.  The Health Insurance Tax Credit is just one small business tax issue we discussed with our clients in 2012.  We also consider cash flow of the company.  The health insurance premiums are paid now and then you get a tax liability reduction later.  So the year’s premiums are up front costs with a small business tax credit kicking in the following year.

Tax positioning starts with accurate and timely small business bookkeeping.  Followed by knowledge of your industry.  Coupled with good current knowledge of  IRS regulations, tax audit red flags and tax court trends.

We have a virtual office, so distance isn’t a factor in being your CPA. For a free initial consult call (910) 399-2705.

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2 comments to Small Business CPA discusses Health Insurance Tax Credit | 2013 Form 8941

  • Ken Brown

    Instructions for Form 8941 Line 19 instructs you to enter the total amount of payroll taxes the tax-exempt employer was ‘required’ to withhold for Income & Medicare, and the amount the employer was ‘required’ to pay.

    We are a Church with half of our Payroll being dual status Pastors who we are not to withhold taxes from. If the Pastoral Staff request an amount to be withheld on their W4, can that be included in the amount entered on Line 19 ?

    • Well that’s a research question Ken. If we were working the case we’d use tax research software to find a definitive answer. However the instructions say require and you’re saying voluntary. So may gusess is that it wouldn’t be listed on line 19.

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