Small Business Federal Tax Credit vs. Maryland State Subsidy Program

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1 Small Business Federal Tax Credit vs. Maryland State Subsidy Program Why it s important The state has offered these subsidies since 2008, but not many have signed up because the program has not been widely publicized. CareFirst serves 33,000 small businesses in Maryland and 80 percent of those have less than 10 employees An estimated 66,000, or 80 percent, of Maryland s 82,600 small businesses could be eligible for these tax credits Small Business Federal Tax Credit Which employers are eligible for small business health care tax credit? Employer must have fewer than 25 full-time employees for the tax year Average annual wages of its employees for the year must be less than 50,00 per FTE The employer must pay the premiums under a qualifying arrangement. Health Care Tax Credit Amounts 35% of eligible premiums -- for 2010 through % of eligible premiums -- beginning in 2014 *No Tax Credit for Owners of the Business* 3 Limitations That Reduce the Health Care Tax Credit Small employers may not qualify for the full amount of the credit. The 35% credit amount represents a maximum amount for the tax credit. The credit must be reduced (or phased out) in the following circumstances: The number of full-time equivalent employees exceeds ten, Average annual wages exceeds $25,000 per full-time equivalent, or Actual health insurance premiums exceed average premiums paid for health coverage in the employer's area. Average Premium by State (Individual/Family Coverage) Maryland 4,837/11,939 Virginia 4,890/11,338 DC

2 5,355/12,823 Claiming the Health Care Tax Credit The Health Care Tax Credit will be claimed using Form 8941 and attached to the business's tax return. The health care credit will reduce any income tax for the business. The credit is nonrefundable (meaning it can reduce income tax to at most zero). The credit cannot offset payroll tax or self-employment tax liabilities for small business owners. What if an employer is receiving State Funded Subsidy? (Example) Employer s state provides a health insurance premium subsidy of up to 50% for each eligible employee. The state pays the premium directly to the employer s health insurance provider. (ii) The employer has one employee. The employee is enrolled in single coverage under the employer s health insurance plan. (iii) The employee s health insurance premiums are $100 per month and are paid as follows: $30 by the employer; $50 by the state and $20 by the employee. The state pays the $50 per month directly to the insurance company and the insurance company bills the employer for $50 per month (the sum of the employer and employee s share). The employer is otherwise a qualified employer that meets the requirements for the federal health care tax credit. (iv) For purposes of determining whether the employer meets the requirements for a qualifying arrangement, and for purposes of calculating the amount of the federal health care tax credit, the amount of premiums paid by the employer is $80 per month (the sum of the employer s payment and the state s payment, which is treated as having been made on behalf of the employer). Maryland State Subsidy Partnership Eligible Employer: Has been in operation for at least 12 months Has not offered health insurance to its employees for at least 12 months Employs at least 2 and not more than 9 eligible employees both at the time of initial application and on at least 50% of its working days during the previous calendar quarter Average wage of eligible employees is less than $50,000 There are special provisions for reporting the income of eligible owners, partners, and their spouses that will benefit some businesses. Eligible Employees: Individual who works on a full-time basis (more than 30 hrs/wk.) An owner, partner, or spouse of an owner or partner who works more than 30 hrs/wk. counts as an eligible employee and must be included in the application. An independent contractor who works more than 30 hours a week and whom the employer chooses to insure is counted as an eligible employee.

3 Temporary, seasonal or substitute employees are not eligible employees

4 Key Features about Renewal Premium will be recalculated as usual. The maximum subsidy will be recalculated based on: The average wage of the business at the time of the renewal application The number of eligible employees at the time of renewal. Subsidies will be lower for businesses with employees. Businesses with 20 or more full-time employees will no longer be eligible for a subsidy.

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