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Free State Tax Return Filing

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Free State Tax Return Filing

Free state tax return filing 2. Free state tax return filing   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Free state tax return filing How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Free state tax return filing Deferral percentage. Free state tax return filing Employee compensation. Free state tax return filing Compensation of self-employed individuals. Free state tax return filing Choice not to treat deferrals as compensation. Free state tax return filing Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Free state tax return filing Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Free state tax return filing S. Free state tax return filing Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Free state tax return filing Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Free state tax return filing A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Free state tax return filing SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Free state tax return filing A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Free state tax return filing Eligible employee. Free state tax return filing   An eligible employee is an individual who meets all the following requirements. Free state tax return filing Has reached age 21. Free state tax return filing Has worked for you in at least 3 of the last 5 years. Free state tax return filing Has received at least $550 in compensation from you in 2013. Free state tax return filing This amount remains the same in 2014. Free state tax return filing    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Free state tax return filing Excludable employees. Free state tax return filing   The following employees can be excluded from coverage under a SEP. Free state tax return filing Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Free state tax return filing Nonresident alien employees who have received no U. Free state tax return filing S. Free state tax return filing source wages, salaries, or other personal services compensation from you. Free state tax return filing For more information about nonresident aliens, see Publication 519, U. Free state tax return filing S. Free state tax return filing Tax Guide for Aliens. Free state tax return filing Setting Up a SEP There are three basic steps in setting up a SEP. Free state tax return filing You must execute a formal written agreement to provide benefits to all eligible employees. Free state tax return filing You must give each eligible employee certain information about the SEP. Free state tax return filing A SEP-IRA must be set up by or for each eligible employee. Free state tax return filing Many financial institutions will help you set up a SEP. Free state tax return filing Formal written agreement. Free state tax return filing   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Free state tax return filing You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Free state tax return filing However, see When not to use Form 5305-SEP, below. Free state tax return filing   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Free state tax return filing Keep the original form. Free state tax return filing Do not file it with the IRS. Free state tax return filing Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Free state tax return filing See the Form 5305-SEP instructions for details. Free state tax return filing If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Free state tax return filing When not to use Form 5305-SEP. Free state tax return filing   You cannot use Form 5305-SEP if any of the following apply. Free state tax return filing You currently maintain any other qualified retirement plan other than another SEP. Free state tax return filing You have any eligible employees for whom IRAs have not been set up. Free state tax return filing You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Free state tax return filing You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Free state tax return filing An affiliated service group described in section 414(m). Free state tax return filing A controlled group of corporations described in section 414(b). Free state tax return filing Trades or businesses under common control described in section 414(c). Free state tax return filing You do not pay the cost of the SEP contributions. Free state tax return filing Information you must give to employees. Free state tax return filing   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Free state tax return filing An IRS model SEP is not considered adopted until you give each employee this information. Free state tax return filing Setting up the employee's SEP-IRA. Free state tax return filing   A SEP-IRA must be set up by or for each eligible employee. Free state tax return filing SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Free state tax return filing You send SEP contributions to the financial institution where the SEP-IRA is maintained. Free state tax return filing Deadline for setting up a SEP. Free state tax return filing   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Free state tax return filing Credit for startup costs. Free state tax return filing   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Free state tax return filing For more information, see Credit for startup costs under Reminders, earlier. Free state tax return filing How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Free state tax return filing If you are self-employed, you can contribute to your own SEP-IRA. Free state tax return filing Contributions must be in the form of money (cash, check, or money order). Free state tax return filing You cannot contribute property. Free state tax return filing However, participants may be able to transfer or roll over certain property from one retirement plan to another. Free state tax return filing See Publication 590 for more information about rollovers. Free state tax return filing You do not have to make contributions every year. Free state tax return filing But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Free state tax return filing When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Free state tax return filing Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Free state tax return filing A SEP-IRA cannot be a Roth IRA. Free state tax return filing Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Free state tax return filing Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Free state tax return filing If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Free state tax return filing Participants age 70½ or over must take required minimum distributions. Free state tax return filing Time limit for making contributions. Free state tax return filing   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Free state tax return filing Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Free state tax return filing Compensation generally does not include your contributions to the SEP. Free state tax return filing The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Free state tax return filing Example. Free state tax return filing Your employee, Mary Plant, earned $21,000 for 2013. Free state tax return filing The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Free state tax return filing Contributions for yourself. Free state tax return filing   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Free state tax return filing However, special rules apply when figuring your maximum deductible contribution. Free state tax return filing See Deduction Limit for Self-Employed Individuals , later. Free state tax return filing Annual compensation limit. Free state tax return filing   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Free state tax return filing However, $51,000 is the maximum contribution for an eligible employee. Free state tax return filing These limits are $260,000 and $52,000, respectively, in 2014. Free state tax return filing Example. Free state tax return filing Your employee, Susan Green, earned $210,000 for 2013. Free state tax return filing Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Free state tax return filing More than one plan. Free state tax return filing   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Free state tax return filing When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Free state tax return filing Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Free state tax return filing Tax treatment of excess contributions. Free state tax return filing   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Free state tax return filing 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Free state tax return filing $51,000. Free state tax return filing Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Free state tax return filing For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Free state tax return filing Reporting on Form W-2. Free state tax return filing   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Free state tax return filing Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Free state tax return filing If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Free state tax return filing Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Free state tax return filing Your contributions (including any excess contributions carryover). Free state tax return filing 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Free state tax return filing In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Free state tax return filing Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Free state tax return filing When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Free state tax return filing The deduction for the deductible part of your self-employment tax. Free state tax return filing The deduction for contributions to your own SEP-IRA. Free state tax return filing The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Free state tax return filing For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Free state tax return filing To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Free state tax return filing Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Free state tax return filing Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Free state tax return filing However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Free state tax return filing If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Free state tax return filing Excise tax. Free state tax return filing   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Free state tax return filing For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Free state tax return filing When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Free state tax return filing If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Free state tax return filing If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Free state tax return filing Example. Free state tax return filing You are a fiscal year taxpayer whose tax year ends June 30. Free state tax return filing You maintain a SEP on a calendar year basis. Free state tax return filing You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Free state tax return filing Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Free state tax return filing For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Free state tax return filing S. Free state tax return filing Return of Partnership Income; and corporations deduct them on Form 1120, U. Free state tax return filing S. Free state tax return filing Corporation Income Tax Return, or Form 1120S, U. Free state tax return filing S. Free state tax return filing Income Tax Return for an S Corporation. Free state tax return filing Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Free state tax return filing (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Free state tax return filing , you receive from the partnership. Free state tax return filing ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Free state tax return filing Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Free state tax return filing (See the Caution, next. Free state tax return filing ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Free state tax return filing This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Free state tax return filing You are not allowed to set up a SARSEP after 1996. Free state tax return filing However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Free state tax return filing If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Free state tax return filing Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Free state tax return filing At least 50% of your employees eligible to participate choose to make elective deferrals. Free state tax return filing You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Free state tax return filing The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Free state tax return filing SARSEP ADP test. Free state tax return filing   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Free state tax return filing A highly compensated employee is defined in chapter 1. Free state tax return filing Deferral percentage. Free state tax return filing   The deferral percentage for an employee for a year is figured as follows. Free state tax return filing   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Free state tax return filing Employee compensation. Free state tax return filing   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Free state tax return filing Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Free state tax return filing See Compensation in chapter 1. Free state tax return filing Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Free state tax return filing Compensation of self-employed individuals. Free state tax return filing   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Free state tax return filing   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Free state tax return filing Choice not to treat deferrals as compensation. Free state tax return filing   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Free state tax return filing Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Free state tax return filing 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Free state tax return filing $17,500. Free state tax return filing The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Free state tax return filing Cash or deferred arrangement (section 401(k) plan). Free state tax return filing Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Free state tax return filing SIMPLE IRA plan. Free state tax return filing In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Free state tax return filing Catch-up contributions. Free state tax return filing   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Free state tax return filing The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Free state tax return filing Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Free state tax return filing However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Free state tax return filing The catch-up contribution limit. Free state tax return filing The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Free state tax return filing   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Free state tax return filing Overall limit on SEP contributions. Free state tax return filing   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Free state tax return filing The same rule applies to contributions you make to your own SEP-IRA. Free state tax return filing See Contribution Limits , earlier. Free state tax return filing Figuring the elective deferral. Free state tax return filing   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Free state tax return filing Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Free state tax return filing However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Free state tax return filing Excess deferrals. Free state tax return filing   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Free state tax return filing For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Free state tax return filing The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Free state tax return filing See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Free state tax return filing Excess SEP contributions. Free state tax return filing   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Free state tax return filing You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Free state tax return filing If you do not notify them within this time period, you must pay a 10% tax on the excess. Free state tax return filing For an explanation of the notification requirements, see Rev. Free state tax return filing Proc. Free state tax return filing 91-44, 1991-2 C. Free state tax return filing B. Free state tax return filing 733. Free state tax return filing If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Free state tax return filing Reporting on Form W-2. Free state tax return filing   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Free state tax return filing You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Free state tax return filing You must also include them in box 12. Free state tax return filing Mark the “Retirement plan” checkbox in box 13. Free state tax return filing For more information, see the Form W-2 instructions. Free state tax return filing Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Free state tax return filing Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Free state tax return filing Distributions are subject to IRA rules. Free state tax return filing Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Free state tax return filing For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Free state tax return filing Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Free state tax return filing Making excess contributions. Free state tax return filing Making early withdrawals. Free state tax return filing Not making required withdrawals. Free state tax return filing For information about these taxes, see chapter 1 in Publication 590. Free state tax return filing Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Free state tax return filing Prohibited transaction. Free state tax return filing   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Free state tax return filing In that case, the SEP-IRA will no longer qualify as an IRA. Free state tax return filing For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Free state tax return filing Effects on employee. Free state tax return filing   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Free state tax return filing The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Free state tax return filing Also, the employee may have to pay the additional tax for making early withdrawals. Free state tax return filing Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Free state tax return filing See Setting Up a SEP , earlier. Free state tax return filing Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Free state tax return filing You must also give them notice of any excess contributions. Free state tax return filing For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Free state tax return filing Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Free state tax return filing For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Free state tax return filing Prev  Up  Next   Home   More Online Publications
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Small Business Health Care Tax Credit for Small Employers

 

 

Small employer? Get the credit you deserve.

     If you are a small employer. . .

              with fewer than 25 full-time equivalent employees,
              pay an average wage of less than $50,000 a year, and
               pay at least half of employee health insurance premiums

 

                               . . .then there is a tax credit that may put money in your pocket.

 

 

What You Need to Know about the Small Business Health Care Tax Credit

How will the credit make a difference for you?                 

For tax years 2010 through 2013, the maximum credit is 35 percent of premiums paid for small business employers and 25 percent of premiums paid for small tax-exempt employers such as charities.

 

For tax years beginning in 2014 or later, there will be changes to the credit:

 

  • The maximum credit will increase to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers. 
  • To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.
  • The credit will be available to eligible employers for two consecutive taxable years.

 

Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums — and if you qualify for a 15 percent credit, you save... $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $10,000 a year.

 

Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

 

There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

 

And finally, if you can benefit from the credit this year but forgot to claim it on your tax return, there’s still time to file an amended return.

 

Click here if you want more examples of how the credit applies in different circumstances.

Can you claim the credit?

Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.

To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 (as adjusted for inflation beginning in 2014) per year. Remember, you will have to purchase insurance through the SHOP Marketplace to be eligible for the credit for tax years 2014 and beyond.

Let us break it down for you even more.

You are probably wondering: what IS an FTE. Basically, two half-time workers count as one FTE. That means 20 half-time employees are equivalent to 10 FTEs, which makes the number of FTEs 10, not 20.

Now let’s talk about average annual wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average annual wages you divide $200,000 by 10 — the number of FTEs — and the result is your average annual wage. The average annual wage would be $20,000.

Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000 (as adjusted for inflation beginning in 2014), the amount of the credit you receive will be less.

How do you claim the credit?

You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941.

 

If you are a small business, include the amount as part of the general business credit on your income tax return.

 

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so.
 

Don’t forget... if you are a small business employer, you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.

 

          

Versión en Español

Información acerca del Crédito Tributario por Cuidados de Salud para Pequeñas Empresas

Questions and Answers

Got questions? We have answers.

Small Business Health Care Tax Credit Estimator

Use the estimator to find out whether you may be eligible and get an estimate of how much you might receive.

Forms and Step-by-Step Instructions

Form 8941, Credit for Small Employer Health Insurance Premiums and Instructions for Form 8941

Additional Guidance

Additional guidance on the credit is available in Notices 2010-44, 2010-82 and Notice 2014-6. Find guidance for the 2014 changes in REG-113792-13

News Releases

Affordable Care Act News Releases, Multimedia and Legal Guidance

Widgets

IRS small business health care tax credit Widgets available on Marketing Express.

Information Flyer

Flyer on the Small Business Health Care Tax Credit for small employers.

 

 

 

 

 

 

 

Page Last Reviewed or Updated: 07-Feb-2014

The Free State Tax Return Filing

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