To coin an old phrase:
“Death, taxes and childbirth! There’s never any convenient time for any of them.”(Margaret Mitchell, Gone with the Wind).
This might be true, but you can at least alleviate some of the burden of tax season by doing some preparation in advance. For the small business owner, this means taking the time to maintain good records, understanding what tax deductions you may be eligible for, and taking steps to prepare for the January wage reporting season (see Part 1).
But it also means familiarizing yourself and your employees with what’s new for the 2010 filing season. In a busy year for legislation (which brought us the Affordable Care Act, the Small Business Jobs Act, and the continued impact of the Recovery Act) a great deal did change in terms of tax credits and laws.
Read on for an explain some of the key tax legislation that was passed in 2010 that benefits businesses and employers as well as some of the new obligations that you’ll need to be aware of.
Hiring Incentives to Restore Employment Act (HIRE Act)
In an effort to stimulate job creation, two new tax benefits were introduced in March 2010 for businesses who hire qualified unemployed workers, or workers who were only previously employed on a part-time basis.
1) Payroll Tax Exemption – This gives employers an exemption from their 6.2 percent share of Social Security tax on wages paid to qualified employees between March 19 and December 31, 2010.
2) Business Tax Credit – To encourage the retention of new hires, this credit can be claimed for each qualified employee hired for 52 consecutive weeks, without a significant decrease in pay during the second half of the year. The credit is the lesser of $1,000 or 6.2 percent of wages paid during the 52 week period.
To help determine whether you are eligible to claim these benefits, read “HIRE Act of 2010 – New Tax Incentives!” for a quick explanation and pointers on how to claim.
Health Care Tax Credit
Immediately available tax breaks enacted under the Affordable Care Act of 2010, include the following:
- For Employers – Introduced under the Affordable Care Act, small businesses who have up to 25 employees and pay average annual wages below $50,000 and provide health insurance, may qualify for a small business tax credit this year of up to 35 percent (up to 25 percent for non-profits) to offset the cost of insurance. For information on how to claim this tax credit, the SBA recently released this Guidance on Health Care Tax Credit. For more information on current tax credits and future roll-outs that impact small business under the Affordable Care Act, visit Healtcare.gov/Small_Employers.
- For the Self-Employed (2010 only) – If you are self-employed and pay your own health insurance you can deduct health insurance premiums as a business expense. This reduces your self-employment tax and income tax for the 2010 year (previously you could only deduct the cost as a personal expense and still paid self employment tax on these amounts). This change was implemented as part of the Small Business Jobs Act of 2010. Unless Congress rules to continue this tax break it will only apply to tax year 2010.
Earned Income Tax Credit– Alert your Employees!
This is a nice little tax credit of up to $5,600 that you might want to let your employees know about!
Here’s how it works – if your employees earned less than $48,000 in 2010, they may qualify for the Earned Income Tax Credit (EITC). To receive the credit, taxpayers must first file federal income tax returns, even if they are not required to file. However, according to the IRS, an estimated three out of four qualifying individuals will fail to claim this credit this year.
So to help employers give their teams a heads up, the IRS has several resources that help employers inform employees about EITC.
Some relatively inexpensive ways you can inform employees include workplace posters, email messages to your workforce, a link to the IRS EITC page on your Intranet, stuffers with your Form W-2 mail out, and so on. The IRS is working with a non-profit group – Corporate Voices – to help employers inform their staff about the credit. Take a look at the Corporate Voices EITC Toolkit for more templates and other employer resources.
COBRA Changes
As a result of the Recovery Act, employees who were involuntarily terminated between September 1, 2008 and May 31, 2010, qualify for a 65 percent subsidy of COBRA coverage for up to 15 months.
Under the provision, eligible former employees pay 35 percent of the total premium and the former employer claims the remaining 65 percent of the premium on a quarterly basis as a credit on Line 12a of Form 941 (Employer’s Quarterly Federal Tax Return). Read more about how employers can claim the credit from the IRS here – COBRA Health Insurance Continuation Premium Subsidy.
Related Articles
- The Clock Is Ticking on New Law Tax Breaks – Business.gov blogger, small business advocate and attorney, Barbara Weltman, outlines key provisions in federal legislation enacted in 2010 that create tax opportunities specifically for small businesses that you may want to act upon by the end of this year before these breaks expire.
- Small Business Tax Preparation Tips – Stay a Step Ahead of “Tax Season” Today
- Handling Employer Tax Responsibilities
- Business.gov’s Ultimate Guide to Business Taxes
- Tax Preparation: 3 Essential Online Tax Resources to Add to your Toolkit
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