As we wrote in our June 2010 Monthly Newsletter, Congress enacted two new tax breaks for small employers last winter. The first was the HIRE Act, which exempted employers from paying the 6.2% social security match on wages paid to any qualified employee between 3/19/10 and 12/31/10. This tax break equaled $620 for every $10k of wages earned by qualified new hires.
The second tax credit is for small employers who provide health insurance for their staff. This tax credit is equal to up to 35% of the health insurance premiums paid during the year.
While the HIRE act specifically excluded household employees, the opposite is true for the recently enacted health insurance tax credit through 2013. According to theSmall Business Health Care Tax Credit: Frequently Asked Questions:
1. Which employers are eligible for the small business health care tax credit?
A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement”.
4. Can a household employer be a qualified employer, even if not directly engaged in a trade or business?
A. Yes. For tax years beginning in 2010 through 2013, an employer may still be a qualified employer even though the employees of the employer are not performing services in a trade or business.
If you employ a nanny and pay health insurance for that employee, make sure to complete and attach aForm 8941 to your federal tax return to take advantage of this new tax break. For more information about completing that form, check out theIRS instructions to Form 8941 .