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 IRS Urges Eligible Small Business Owners to Claim Health Care Tax Credit

By: Sabrina Siddiqui
3/13/2012

With business tax filing deadlines fast approaching, the Internal Revenue Service (IRS) today urged employers to explore whether they qualify for the Small Business Health Care Tax Credits available as a result of the Affordable Care Act. Already, hundreds of thousands of small businesses and small business owners – and even larger numbers of workers – have benefited from the credit.

To help more employers benefit from this credit, the recently-revamped Small Business Health Care Tax Credit page on IRS.gov is packed with information and resources designed to help small business owners find out if they qualify for the credit and then figure it correctly. Resources include a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently asked questions, a YouTube video, and a webinar.

The small business health care tax credit was included in the Affordable Care Act enacted two years ago. Small business owners that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. The credit is specifically targeted to help small businesses and tax-exempt organizations with relatively low-wage employees.

Depending upon how they are structured, eligible small business owners are likely subject to one of the following three tax-filing deadlines, which fall in the coming weeks:

  • March 15, 2012: Corporations that file on a calendar year basis can figure the credit on Form 8941 and claim it as part of the general business credit on Form 3800, both of which are attached to their corporate income tax return.
  • April 17, 2012: Individuals have until April 17 to complete and file their returns on Form 1040. This includes Sole proprietors, as well as people who have business income reported to them on Schedules K-1—partners in partnerships, S corporation shareholders and beneficiaries of estates and trusts. They should/must also attach Forms 8941 and 3800 to their return. The resulting credit is entered on Form 1040 Line 53.
  • May 15, 2012: Tax-exempt organizations that file on a calendar year basis can use Form 8941 and then claim the credit on Form 990-T, Line 44f.

Taxpayers needing more time to determine eligibility should consider obtaining an automatic tax-filing extension, usually for six months. See Form 4868 for individuals, Form 7004 and its instructions for businesses and Form 8868 for tax-exempt organizations.

Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years. Corporations use Form 1120X, individuals use Form 1040X and tax-exempt organizations use Form 990-T.

Some businesses and tax-exempt organizations that already locked into health insurance plan structures and contributions may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010 or 2011. These employers can still make the necessary changes to their health insurance plans so they can qualify to claim the credit on 2012 returns or in years beyond. Eligible small business owners can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

Additional information about eligibility requirements and figuring the credit can be found on IRS.gov.

Sabrina Siddiqui is Spokesperson for Tax and Budget, and Economic Policy at the Treasury Department.

Posted in:  Tax Policy
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