Reminder About the Small Business Health Care Tax Credit As Filing Deadlines Approach

There are two significant tax filing deadlines coming up for small businesses that requested an extension to file their taxes: (1) September 15th for corporations that file on a calendar year and requested an extension, and (2) October 17th for sole proprietors who file Form 1040, partners, and S corporation shareholders who requested an extension to file.

The IRS and the Department of Health and Human Services have launched a series of outreach to these small business tax filers to make sure they check whether they are eligible to claim the small business health care tax credit. The credit was passed last year as part of the Affordable Care Act and is available for small businesses that employ 25 or fewer workers with average income of $50,000 or less. The employer must pay at least half of the health insurance coverage premiums for their employees under a qualifying plan to be eligible for the credit.

Corporations calculate the small employer health care credit on Form 8941 and then claim it as part of the general business credit on Form 3800, which they would include with their corporate income tax return. Sole proprietors who file Form 1040, partners, and S corporation shareholders who file Form 1040 would also use Form 8941 to calculate the credit and then would claim it as a general business credit on Form 3800, shown on line 53 of Form 1040.

The IRS also has posted the following information about the credit:

  • Businesses who have already filed can still claim the credit: For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X
  • Businesses without tax liability this year can still benefit: The Small Business Jobs Act of 2010 provided that for Tax Year 2010, eligible small businesses may carry back unused general business credits (including the small employer health care tax credit) five years.  Previously these credits could only be carried back one year.  Small businesses that did not have tax liability to offset in 2010 should still evaluate eligibility for the small business health care tax credit in light of this expanded carry back opportunity.
  • Businesses that couldn’t use the credit in 2010 can claim it in future years: Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

In addition to today’s IRS announcement, HHS posted additional information on this credit at HealthCare.gov.

Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.