The Happy Cleaner Blog

Health Care Reform and the Small Business Health Care Tax Credit

The recently passed health care legislation is a very complex law.  Most of the provisions do not even take effect this year, however we thought you should be aware of four provisions that will affect you in 2010.

1. Beginning with the first plan year after September 23, 2010, an employee will be allowed to enroll his or her child on the health insurance plan up to age 26 – even if the child no longer lives with the parent – provided that the child does not have other coverage available to him or her.
2. Beginning with the first plan year after September 23, 2010, some lifetime benefit caps are eliminated along with the elimination of the pre-existing condition limitation on dependent children under age 19. 
3. Beginning with the first plan year after September 23, 2010, an employer may no longer establish any eligibility rules for participation in a health care program that discriminates in favor of higher-paid employees
4. Beginning no later than the tax year that begins on or after January 1, 2010, a business tax credit may be available to certain small employers that provide health care benefits to its employees.  This program is discussed below.

The only major provision that became effective immediately is a small employer tax credit available effective no later than the organization’s tax year beginning on or after January 1, 2010.  A small business or tax exempt organization is eligible to claim a health care tax credit provided that

• The number of full-time equivalent (FTE) employees, not including the owner(s) or family members of the owner(s), is 24 or less; and
• • The FTE equivalent is calculated by counting each full-time employee as one employee, and then adding the annual hours worked for part-time employees up, and dividing by 2,080.  Add the number of full-time employees to the FTE equivalent for the part-time employees, and you have the FTE equivalent.  A seasonal worker (defined as one who works less than 120 days during the tax year) does not count in the FTE calculations. 
• The average annual total wages paid to these employees, again not including the owners or family members of the owner(s) is $50,000 or less; and
• You pay at least half of the insurance premium for each employee at the single, employee-only, coverage rate; and
• This means that an employer who either employs 25 or more employee FTEs, or one who pays an average annual wage in excess of $50,000, is ineligible for the tax credit.

The tax credit percentage can be as high as 35% for a firm with nine or fewer employee FTEs and average wages less than $25,000.  The tax credit percentage that a firm with more than ten employees, or average wages up to $50,000 will be lower, dependent on the formula.  The calculation will also take the ‘average premium for a small group market’ as determined by the IRS into account; this determination has not yet been released by the IRS.

The IRS has published some valuable guidance on the program at http://www.irs.gov/newsroom/article/0,,id=220809,00.html.  EMPO recommends that you check with your tax preparer prior to your next medical renewal to ensure that you can maximize any credits available to your business.

The information provided in this article is guidance based on the information available to EMPO at the time this article was published.  We expect changes to be made to the law itself, either by Congress or by the Department of Health and Human Services (HHS).  HHS has been tasked with implementing most facets of the new law.  Because HHS has been given broad powers in how to implement the general guidelines of the law, there are changes anticipated to what we presently know.  These changes should not greatly affect the changes planned for 2010 or 2011, but will likely affect later years.  We will keep you informed as these changes occur, and as we get closer to implementation in later years.

by Scott Andreassen, Director of HR Services at EMPO

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The HIRE Act – What It Can Do For Your Bottom Line

Do you plan on increasing staffing levels this year?  If so, you may be interested in new tax incentives recently passed into law by the federal government.  On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law; it became immediately effective, and provides an incentive for you to increase your staffing levels between February 3, 2010 and December 31, 2010.  There are two incentives that encourage a business to increase its payroll:

1. A payroll tax incentive of 6.2%, essentially offsetting the employer’s portion of the FICA tax, with a maximum credit of $6,621.00 against wages paid to a qualified employee who was formerly unemployed. This incentive is good only against wages paid from March 19, 2010 through December 31, 2010. An individual is determined to be qualified if:

1. he or she began employment on or after February 3, 2010, but not later than December 31, 2010; and
2. he or she can certify that he or she has not been employed for more than a grand total of forty hours during the sixty day period immediately prior to starting employment for you.
3. he or she is not a replacement for another employee unless a replacement is necessary due to either:
4. 1. a voluntary resignation by the other employee; or
   2. layoffs previously implemented by your company; or
   3. a position that has opened up because your company has terminated another employee ‘for cause’ (because the term is very loosely defined, EMPO’s recommendation is to be careful with the use of this part of the qualification pending further guidance (if any) from the IRS); and
5. he or she is not related to any of the company’s owners – more information, including a detailed definition of a relative, can be found on the affidavit referenced below; and
6. he or she completes the IRS Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, which is attached to the newsletter email.

• The payroll tax credit is only for the FICA 6.2% employer-paid portion that is equivalent to what the employer would normally match on behalf of the employee. The employer tax credit does not affect the employer’s responsibility to withhold and remit the 6.2% employee contribution from each qualified employee’s paycheck, nor does it affect either the employee or employer portion of the Medicare tax.
• An eligible employee can be a new hire who has never worked for your company previously; or an employee who has been laid off, or another rehire who had not been laid off, provided that he or she is otherwise eligible as described in items a through e, above.
• You can also use this credit to expand your workforce through creation of a new position(s).
• If an employer claims the Work Opportunity Credit for an employee, the employer cannot also claim the payroll tax credit under the HIRE Act.  If your company claims the Work Opportunity Credit, you should consult with your tax preparer to determine which option is better for you to claim.  The IRS will be developing a form that will allow a company to opt out of the payroll tax credit in favor of the Work Opportunity Credit.

2. A one-time business tax credit of up to $1,000.00 (the lesser of $1,000 or 6.2% of the qualified wages paid to a qualified employee) may be claimed no earlier than on your 2011 business tax return provided that:

1. you hire a qualified employee as determined using the same criteria as in item 1, above; and
2. he or she remains on your active payroll for at least 52 consecutive weeks; and
3. he or she receives pay in the second 26-week period that does not ‘decrease significantly’ from the first 26-week period to the second 26-week period – unfortunately, ‘decrease significantly’ is the term defined in the law, and is open to interpretation pending further guidance (if any) from the IRS.

• If your business tax year does not follow the calendar year, your credit may need to be spread over the 2011 and 2012 tax returns.
• The IRS’ Technical Explanation of the HIRE Act is unclear as to whether the Work Opportunity Credit can be claimed along with the business tax credit.  Therefore, further guidance will need to be issued by the IRS on if (or how) the two credits can work together.  The payroll tax incentive described in item 1, above, will work with the business tax credit.

The payroll tax credit is effective for wages paid on or after March 19, 2010, and on or before December 31, 2010.  To estimate what this tax incentive means to your bottom line, multiply qualified wages you anticipate paying to the qualified employee in 2010 by 6.2%.  The IRS will be working to modify the Form W-2 to show qualified earnings.

The business tax credit will need to be claimed on your business tax return by the tax professional who handles your company’s business tax returns.

What should I do now?

You can start the process by providing each employee you have hired since February 3, 2010 with the attached Form W-11.  Going forward, you should provide each new hire with the Form W-11 as part of the new-hire package.  Remember that this program only works for an individual who was actually out of work.  So if you hire someone in a situation in which you cannot meet all the requirements listed above, then it is not necessary to complete the form.  Please do not hesitate to call your HR Consultant or EMPO if you have questions on this or any other matter.

By Scott Andreassen, EMPO's Director of HR Services

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Is Now the Right Time to “HIRE”?

If you were looking for the “right” time to staff up, now may be it. Earlier this month, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law effective immediately.  There are two primary incentives to encourage employers to hire staff including a tax incentive of 6.2%, which essentially offsets the employer’s portion of the FICA tax with a maximum credit of $6,621.00 for wages paid to qualified employees who were formerly unemployed.  This incentive will be claimed on the quarterly tax filing beginning with the filing for the second quarter.

The second incentive includes a tax credit for businesses of up to $1,000.00 if these employees are retained for 52 weeks or more, and the amount of pay they receive in the second 26-week period is essentially equal to the amount of pay they receive in the first 26-week period.

Whereas you should always hire the best person for the job, you may want to keep in mind the following when you are looking at candidates.

To qualify a newly-hired employee:

• Must start work after February 3, 2010 and before Jan 1, 2011.
• Must not have been an employee for more than 40 hours during the 60 days before start date.
• Must not replace a current employee (unless that employee was separated from employment voluntarily or for cause).
• Must not be related to the employer or directly or indirectly own more than 50% of the business.
• May be previously laid-off employees.
• May be part-time or less than full time employees.

The payroll tax forgiveness does not apply to wages paid in the first quarter of 2010. However, any amount that would have been allowed in the first quarter (i.e., wages on or after March 18, 2010) would be credited against the employer’s OASDI liability for the second quarter. Beginning for new hire wages paid beginning April 1, 2010, the employer would take the OASDI forgiveness into account for regularly deposited payroll taxes.

In order to receive the retention credit the new worker must:

• Be employed 52 consecutive weeks. A prorated credit for a short period is not allowed.
• Domestics and workers eligible for a “foreign earned income exclusion” are not eligible.

The tax credit will be available to most employers on the 2011 income tax return. It should be noted, however, that the HIRE Act does not allow carry back of any unused Section 38 business credit that is attributable to the provision for retained workers.

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