Small Businesses Health-Care Tax Credit for Dental and Vision

Small businesses will be able to claim a new federal health-care tax credit for dental and vision benefits in addition to health insurance premiums, a Treasury Department official announced. The Treasury released technical guidance explaining what kinds of expenses are eligible and how small firms should calculate their credit amount. The credit will offset employer health-care premiums paid on and after Jan. 1, 2010, under health-care legislation signed in March by President Barack Obama.

Firms may claim state health tax credits and other subsidies without having their federal health-care tax credit reduced, said Treasury Assistant Secretary for Tax Policy Michael Mundaca in a conference call with reporters. Some small-business advocates criticized the tax credit Monday as too limited in scope. Bill Rys, tax counsel for the National Federation of Independent Business, said more than two-thirds of small firms will be excluded because they are too large or don't currently offer health insurance.

Eligibility for the credit is limited to firms with fewer than 25 full-time workers, or the equivalent, and average wages of less than $50,000. To qualify, firms must pay at least 50% of worker health-insurance premiums. The credit is worth up to 35% of the employer's premium costs for the smallest firms. That percentage is reduced for firms with between 10 and 25 employees, and to the extent that average wages exceed $25,000.

The Internal Revenue Service earlier this year notified four million small businesses that they may be eligible to claim the credit this year. Mundaca said the Treasury doesn't have estimates yet on how many will actually claim it. Small firms will claim the credit next year when they file their 2010 tax returns. But they already may be able to benefit in the second half of this year by having quarterly estimated tax payments reduced to reflect the credit.

Small Business Health Tax Credit Companies with 10 employees or less may get a tax credit of up to 35 percent of the employer premium costs (25 percent for tax exempt small employers), but only if they pay their workers $25,000 or less and provided the employer contribution is at least 50 percent of the premium costs. Credit is reduced on a sliding scale per employee for companies with 11-25 employees, and is reduced as the average wage increases from $25,000 to $50,000. Companies with more than 25 employees, or that pay their employees on average over $50,000, are not eligible. This tax credit is only available for a maximum of five years, and only two years once the Health Insurance Exchanges are up and running in 2014.