June 2010 Small Group Newsletter - IRS health reform tax info

Issue: # 2　　　　　　　　　　　　　　　 July 2010

for IRS Section 45R  Tax Credit for Employee health insurance expenses for small employers (official ) document Click Here

Well I hope you enjoyed our first edition of the Colgrove Financial Healthcare reform Newsletter.　 For those of you who may have missed this, we have copy posted on our blog for your edification.　 www.wearingtoomanyhats.com　 and look for the blog tab and it will be listed there along with other topical entries.
June 23rd has come and gone and we are still no closer to knowing what the guaranteed federal coverage for individuals is going to look like since the last newsletter. It looks like now they are targeting August 1 for this.　 Time will tell.

 The government giveth you a tax break and then taketh it away and taketh away and then taketh away even more.　 But remember it is for the children.　 We will focus on the giveth part at this point.
　
If you have fewer than 25 employees, (these are FTE or Full Time Equivalents, meaning if you have 4 people working 10 hours per week, that equals one FTE) than you may be eligible for a tax credit.　 The average wage for these FTE must be less than $50,000.　 If you own the company, than you are not included in the Full Time Equivalent employees so evidently the government must not think that people who own companies work full time.　 For that matter, they do not count as part time either.　 Also family members are not part of the FTE either.　 So when we are doing this for the children, evidently it is not for the children of business owners, they don't count.　 They are not worthy of a tax credit.

The company must have a "qualifying arrangement", which in English means, you have to pay 50% of more of the employee premium for the group coverage.　 We are not going to go into non qualifying arrangements at this time since most small companies work with group health carriers.　 These plans include vision, dental and other supplemental group plans where the employer contributes to the premium.

* Just a thought but you may want to hire a lot of seasonal workers, because they are not part of this FTE. So hire seasonal workers for　less than 120 days during the taxable year.　 Perhaps we could form 4 or 5 different corporations and rotate the seasonal workers every 119 days?　 Just a thought.　

For 2010 through 2013, the maximum credit is 35% of the employer's premium payments for this qualifying arrangement.　 So if employer paid $72,000 and had less than 10 employees and the average wage was less than $25,000, then the tax credit would be $25,200.　 This fun credit begins being phased out if you have over 10 FTE and/or the average wages are　over $24,999.　 If fractions make your head hurt, you may want to seek professional advice at this time.　 You take the number of FTE over 10 and divide by 15 to get your special number.　 Multiply this special number times your credit amount　to get a specific dollar amount of your new healthcare credit reduction amount.　 This amount will be subtracted from your tax credit.　 But wait there is more.　 Now we need to determine the adjustment if the average wages are over $25,000 but less than the $50,000 cut off.　 So if the average wages are over $25,000 take the difference and divide by 25000 to get your second special reduction number.　Multiply this number times the original tax credit amount ($25,200)　to get your second special dollar amount that you need to subtract from your tax credit.　 So you only need to do this second special number if your average wages are over $24,999.　 so the tax credit - special number for those with over 10 people - special number for those companies whose average is over $24,999 = your healthcare tax credit.　 Just remember, we are your government and we are here to help you.

If you are participating in the Arizona state small group premium credit program, you cannot take the credit as being paid by your company.　
This credit is a general business credit so it can be carried back one year or forward up to twenty years.　 Although you really cannot take it back since you were not eligible for the credit till 2010.　 IRS says you cannot take a credit until the year you could get the credit.　 This fine credit can also be used to offset your AMT (alternative minimum tax)　as well.　

This is a brief synopsis of the small business credit that the Washington DC gods are sending your way.　 I have skipped some of the information in IRS notice 2010-44 as it was blatantly obvious but it keeps bureaucrats in business and other areas will apply some but not others.　 If you go our blog on our web site, www.wearingtoomanyhats.com we will post the IRS letter ruling this information was taken from.　 For you detail people this will definitely be needed.　 I wanted to make you aware of this as it pertains to our taxes for 2010.　　

　
Remember this is not for the faint hearted, so if your person who does your taxes is not of stout heart and needs assistance, we are trained professionals.　 We are here to help protect not only your health risks in life but many of your other risks.　
　
Feel free to pass this on to others who may be interested in the Government Healthcare take over as it pertains to them.　 If you want to get an idea of what your credit may look like for 2010 give us a call.　 If you want your present benefits situation reviewed, than we can do that as well.　 Please remember that I am not a tax preparation person, but then again if you call the IRS they do not guaranteed their answers either.　 Fascinating how those who are in charge take no responsibility for their answers.　　

Call us　now so we can　help give you an idea of what the possible tax credit might be for you or if we need to arrange things to maximize the credit and minimize the　damage to your company.　

Sincerely,

Craig Colgrove
Colgrove Financial