Changes to Small Business Health Care Tax Credit
Editor's note: this post first appeared at IRS.gov/aca.
Small employers should be aware of changes to the small business health care tax credit, a provision in the Affordable Care Act that gives a tax credit to eligible small employers who provide health care to their employees.
Beginning in 2014, there are changes to the tax credit that may affect your small business or tax-exempt organization:
- Credit percentage increased from 35 percent to 50 percent of employer-paid premiums; for tax-exempt employers, the percentage increased from 25 percent to 35 percent.
- Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
- For 2014, the credit is phased out beginning when average wages equal $25,400 and is fully phased out when average wages exceed $50,800. The average wage phase out is adjusted annually for inflation.
- Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit. Transition relief from this requirement is available to certain small employers.
Small employers may still be eligible to claim the tax credit for tax years 2010 through 2013. Employers who were eligible to claim this credit for those prior years – but did not do so – may consider amending prior years’ returns if they’re eligible to do so in order to claim the credit.
The following information will assist you in completing Form 8941, Credit for Small employer Health Insurance Premiums.
- SHOP QHP documentation or letter of eligibility from SHOP, unless transition relief applies
- Numbers of full-time and part-time employees and numbers of hours worked
- Average annual wages for employees
- Employer premiums paid per employee, if applicable
- Relevant K-1s and other pass-through credit information
- Cost of coverage for each employee
- Payroll tax liability – for tax-exempt organizations only
- Pass-through credit info – for K-1s of other small employers
For more information about the Affordable Care Act and filing your 2014 income tax return, visit IRS.gov/aca.
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Oops! Fixing Tax Mistakes
We all make mistakes and when it comes to taxes it’s all too easy to slip up. Recognizing mistakes and fixing them as quickly as possible is the key to minimizing interest and penalties and getting back on track.
Employer tax mistakes
Unless you’re a very small employer (with quarterly employment taxes under $2,500), you must deposit employment taxes (income tax withholding, FICA, FUTA) on a regular schedule (this depends on the size of your payroll). If you fail to do so, there’s a penalty. This penalty is designed to encourage your correcting a delinquent deposit as quickly as possible because it’s only 2% if you’re one to five days late. But the penalty escalates over time; more than 10 days late and you’re looking at a 15% penalty.
What to do: Deposit your tardy employment taxes as soon as possible, making this a priority payment over your other payment obligations (e.g., pay the Treasury before some vendors) when you’re in a cash crunch.
Note: If you use an outside payroll service, you’re on the hook even if the mistake is theirs, so be sure you’re working with a reliable agent. Check to see if the payroll agent passed the IRS’s Assurance Testing System.
You also have to timely file employer tax returns. If you make errors on employer tax returns, file a corrected one:
- To correct Form 940 for FUTA taxes, file a new Form 940 and check the box to indicate that it’s an amended return.
- To correct Form 941 for withholding and FICA taxes (the quarterly return) or Form 944 (the annual return), file Form 941X, or Form 944X.
Mistakes on income tax returns
Say that while preparing your 2014 tax return, your accountant notices a mistake on your 2013 return that could have lowered your tax bill. To claim your refund, you must submit an amended return within the limits fixed by law, and use the right form. Let’s say the error was on your S corporation’s return. The corporation files an amended Form 1120S and checks a special box indicated that it’s an amended return. Then you as the shareholder file an amended Form 1040 to reflect the correction on the corporate return; use Form 1040X to amend your personal return.
But what if the flip side applies and you mistakenly omitted income or made some other error that increases your tax bill? If you’re a freelancer who failed to report some income that was included on a Form 1099-MISC, the IRS likely will catch up with you and send a bill. But the sooner you report omitted income, the smaller your interest cost will be. (I know that the interest charge today is very low, but it’s still an expense you can avoid by prompt action.)
Information reporting slipups
Forgot to send 1099s to contractors or failed to issue W-2s on time? Or didn’t include all the necessary information on the forms you issued? You may be able to avoid penalties for your mistakes by showing reasonable cause, but merely forgetting isn’t an acceptable excuse. Good excuse? Maybe you thought you didn’t have to issue a 1099 because you’re dealing with a limited liability company, but you really did have to issue one if there’s only one member in the LLC because this is viewed as a “disregarded entity.”
If you can’t avoid penalties, you’re looking at $30 per 1099 if you correct your mistake within 30 days of the original due date (February 2 this year). The penalty goes up to $60 per 1099 if you act after 30 days but before August 1. Miss this date and you’re facing a $100 per-1099 penalty. Find more details about penalties from the IRS.
What to do: Let’s repeat: correct the mistake as soon as you can to minimize any penalties.
If there’s a mistake on your return or you fail to comply with tax requirements, in some cases (as mentioned earlier) you may be able to avoid costly penalties by showing that your failure was due to reasonable cause; you didn’t do it on purpose. But the ball is in your court to tell the IRS before it contacts you. Work with a knowledgeable tax pro to make sure you handle any mistakes properly.
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Prepare Your Small Business for Tax Time
This tax season, like every tax season, small business owners across the country will face innumerable questions and doubts about how to handle their business’s filing. Should I do them myself? What savings am I missing out on? How can I avoid being audited? These questions and tasks are so burdensome in fact, that 40% of small business owners say bookkeeping and taxes are the “worst part of owning a small business.” Is it any surprise that something as unclear, time-consuming and important as taxes creates such stress?
Whether you decide to outsource your tax tasks or perform them in-house, it’s important to arm yourself with the relevant knowledge to make sure your business not only complies but also saves time and money wherever possible. Here are a few resources to get you started:
Avoid common mistakes
Every year, accountants across the country and the IRS watch small business owners make the same mistakes again and again. Give yourself a leg up by avoiding these Common Small Business Tax Mistakes. From when to start preparing to whether or not you can deduct your dog’s vet bills and your family vacation, small business expert Rieva Lesonsky gives you a peak behind the scenes into what errors others are making.
Understand the forms that apply to your business
Time to get down to the nitty gritty of all those fun forms. Here’s what you need to know:
- Do you employ contractors? Get to know the 1099-MISC Form for Small Business Owners and learn tips for safely and legally employing contractors.
- Do you operate a sole proprietorship or single-member limited liability company (LLC)? Let the Guide to Completing the Schedule C walk you through each line with simple, straightforward instructions.
- And if you’re filing a Schedule C, here’s another topic you’ll surely find interesting: “How to Reduce your Self-Employment Tax Bill.”
Luckily, we’re still ahead of the curve for tax season this year. Add another arrow to your quiver by joining the upcoming free live webinar: “Tax Strategies to Ensure You Pay #NotOneDollarMore” on February 10 at 1pm Eastern. Register here.
Free knowledge sure sounds like a good deal this time of year. Speaking of free, team up with a SCORE mentor for free one-on-one guidance on being tax compliant year round, properly classifying employees or any other small business topic. Connect with a SCORE mentor today.
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35 Tradeshow Essentials
When I worked as an employee, exhibiting at tradeshows was part of my job. But since I was usually a speaker and schmoozer, I didn’t really deal with the nitty-gritty like setting up the booth, unpacking boxes and hanging signs (we had a tradeshow division for that!).
I started my own business in 2008, and the first tradeshow I attended as an entrepreneur was a big reality check. With no “tradeshow division” to help out other than my two inexperienced partners, I was unaware of so many little things that could have made a big difference in my tradeshow experience.
With that in mind, here’s my nitty-gritty list of 35 things to bring when exhibiting at a tradeshow.
In addition to the basics —registration information confirming your booth location and other details, your booth signage, your marketing materials and any promotional items — you’ll want to contact the venue to find out what is available from them, including what they provide as standard and what is extra. For example, if you need a dolly to bring your boxes into the venue, will they provide one, will you have to rent one or will you have to bring your own?
Items you can often rent include curtains, lights, TV stands, chairs and tablecloths. One thing you should never rent: any type of computer equipment. Bring your own tech tools—that way you know they’ll work properly.
Pack the items the venue isn’t providing, as well as:
- Duct tape, electrical tape, masking tape, Scotch tape. This will sound like overkill until you find yourself standing on a chair struggling to tack your banner up with used chewing gum.
- Refreshments: Bottled water, soda, nuts and other snacks that travel well will keep you and your team going. Pick foods you can eat unobtrusively and without dropping crumbs or getting sticky (nuts are ideal).
- Stapler and staple gun (or a heavy-duty stapler that serves both purposes). Make sure it’s full of staples.
- Pens: Take five times as many as you think you’ll need. You won’t believe how many people will walk away with your pens.
- Sharpies or large markers: Can be used for signage in a pinch.
- Business cards: Again, take five times more than you think you’ll need. Also bring some blank ones (with just your company’s logo, website, address and main phone number, but no one’s name on them) in case anyone runs out. They can just write on the blanks.
- Post-It notes
- Legal pads or blank note pads to write on
- Clipboards: If you will have people fill out forms, handing out clipboards means you can take several people’s info at once, instead of everyone crowding up to the table.
- Containers for your giveaways: Having your brochures, business cards or flyers in attractive displays looks a lot better than scattering them on the table. Simple clear acrylic holders work great.
- Tablecloths: If bringing your own, be sure you know the measurements of the booth tables, and bring cloth, not plastic, tablecloths—plastic looks cheap.
- Twine or heavy-duty string: Invaluable in tying up banners or looping around cords.
- Cord keepers: Big plastic trash-bag ties work well to keep cables and cords out of the way.
- Rubber bands and paper clips
- Boxes/containers: Something to put all the paper you’ll gather into, like lead sheets, survey forms or business cards.
- Small tool kit with screwdrivers, a box cutter to open all the boxes you shipped, and other basic tools you might need to set up
- Laptops (always have a backup computer)
- Tablet computers (ditto)
- Chargers for the above
- Phone charger
- Phone backup battery
- Cables to connect devices to each other
- Extension cords (several)
- Surge protector/plug-in strip
- Jump drives or other portable data storage
- Small first aid kit with bandages, cough drops, ibuprofen/acetaminophen, cold medicine, nail file/clipper
- Hand sanitizer and lotion: Stay healthy despite shaking all those hands. Keep your hands smooth despite all the hand sanitizer.
- Breath mints: Don’t chew gum in the booth.
- Safety pins: Prevent wardrobe malfunctions.
- Cleaning supplies: Glass cleaner, cleaning spray, paper towels and trash bags help you keep the booth looking good.
- Floor pads: Pads (like those sold for kitchen use) can make it a lot more pleasant to be on your feet all day.
- Change of shoes: You’ll want comfortable shoes for setup and breakdown.
- Plastic container: A big plastic tub with a lid is a better place for the booth staff’s personal belongings, such as purses and jackets, than shoving them under the display table. (More theft than you might think takes place at tradeshows.)
- Plastic zip-lock bags: You never know when you’ll need one.
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