Complex tax matters deserve the most attention during courses to update Enrolled Agent education. An EA sometimes needs refresher lessons to cement understanding of exact details. Tax credits are the most common area where rules change and specific features are not easily remembered.
Healthcare legislation in recent years has delivered an extensive new area of tax credit determination. Correctly calculating the small employer health insurance credit is particularly challenging. In addition, extra Enrolled Agent jobs for small businesses entail rendering advice about compliance with healthcare law because penalties for violations are enforced by the IRS.
The concerns that Enrolled Agents should prepare to address for small businesses comprise crucial elements of EA CE for 2012. First on the agenda is the small employer health insurance tax credit. This has been available for the past couple of years, but the IRS reports that few eligible companies have claimed the credit. Every EA should understand when circumstances might trigger this tax advantage.
Businesses providing health insurance for low-wage employees qualify for the small employer health insurance tax credit. Employers must have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000. Calculating the credit starts with comprehending the definition of full-time equivalent (FTE) employees from Enrolled Agent review courses.
A FTE employee is determined by dividing the combined number of hours of service for all workers by 2,080. This formula thus excludes overtime hours exceeding 2,080. Also omitted are the hours of seasonal employees who work less than 120 days per year. The hours of proprietors, partners, and shareholders – as well as their relatives – don’t count either.
The tax credit for 2010 through 2013 is 35 percent of healthcare premiums paid – up to a maximum threshold. Starting in 2014, the credit rises to 50 percent. However, eligible employers at that time must purchase the health insurance through a state exchange.
The small employer health insurance credit begins to phase out at 10 FTE employees and average wages in excess of $25,000. Both variables reduce the credit. Hence, Enrolled Agent study materials contain several factors showing how the phase out is calculated. The credit increase starting in 2014 does not affect the phase out.
Small employers with modestly paid workers are commonly too busy with operational matters to capture certain tax benefits. The small employer health insurance tax credit certainly exemplifies this situation. Understanding full-time equivalent employees and insurance exchanges is a daunting task best left to Enrolled Agents serving the tax needs of small businesses.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.