You’re in the majority if you haven’t read all 906 pages of the Patient Protection and Affordable Care Act as it was passed on at the end of 2009. With politicos and pundits still trying to digest this mammoth bill and its implications to business, there is some good news to report, says Mike Scholz, CPA, tax director at Wegner CPAs and Consultants LLP in Madison.

“While the act does change the way that employers have to provide health care to their employees, any required initial changes are subtle,” says Scholz. “Moreover, a lot of the required changes don’t kick in until 2014, and still more are not required until 2018.”

So while it is prudent that businesses do keep an eye on what shakes out from the Patient Protection and Affordable Care Act as a whole in the next few years, Scholz notes that there is one immediate incentive already available to businesses.

“The Health Reform Act offers partial tax credits equal to a percentage of health care premiums for qualifying small businesses,” he says.

To qualify, an employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. A qualifying employer must have less than the equivalent of 25 full-time workers and must pay average annual wages of less than $50,000. The maximum tax credit is available for employers with 10 or fewer employees and an average annual wage level of $25,000 or less.

“The maximum credit is 35 percent of a small business’ premium costs in 2010,” says Scholz, who notes that this is a credit businesses take when filing their tax returns. “The credit does phase out for firms that have 25 or more full time employees.”
If your organization is a non-profit, the credit also applies though at a lower level, 25 percent versus 35 percent. The upside is that you can take the credit right away to offset Medicare and federal withholding payroll taxes.

“Generally speaking, non-profit organizations don’t have a tremendous amount of cash, and this credit can help with your cash flow,” he says.

There’s also another recent tax Act that’s far more applicable to businesses in the short term: The Hiring Incentives to Restore Employment (HIRE) Act.

Among the incentives are a payroll tax holiday for new hires, if they meet the applicable requirements.

“If you hire someone who has worked 40 hours or less in the last 60 days and they’ve been hired after Feb. 3, 2010, that hire will qualify for a FICA tax holiday through the end of the calendar year,” says Scholz. “And if your company wasn’t aware of it and made that hire, your company may be eligible for a refund of the payroll tax already paid.”

He notes that this is something businesses should look into, even if they are using a payroll service.

“While most payroll services are indeed aware of this incentive, they haven’t always been sharing it with their customers,” he notes. “If your company has added new hires, it’s something you should definitely look at.”

Qualified employees will need to fill out a new IRS form W-11, an affidavit that confirms eligibility. Like other employment forms, the W-11 should not be sent to the IRS but kept on file in the employee’s records.

“There are no age or work parameters attached to this incentive either,” notes Scholz. “So it does apply, for example, to recent graduates and seasonal workers who may only seek employment during the summer months.”

He adds that one area that the IRS is not completely clear about, however, is the definition of “employee.”

“If someone has been working as an independent contractor, by definition, that means he or she has not been an employee,” he notes. “It is entirely possible that person would qualify.”

Finally, another tax credit up to $1,000 is available for employers that retain new employees.  “The employees must remain on your payroll for 52 weeks,” says Scholz. “That will exclude most seasonal workers.”

By Laurie Arendt

Laurie Arendt is editor of CRW. She can be reached at crweditor@crwmag.com