You may be able to help your organization qualify for President Obama’s new healthcare tax credit – even if it seems there aren’t enough employees on the payroll to meet the criteria.
New IRS guidance says employers have flexibility on determining hours worked for each employee. This count is important because the tax credit’s matching rate from 2010 through 2013 is highest for employers with 10 or fewer full-time equivalent (FTE) employees. (Employers with fewer than 25 FTEs qualify for a reduced credit.)
Seem too small to include your employer? The new guidance allows firms to choose among three different methods of determining hours to minimize their bookkeeping duties, while receiving the maximum credit. Employers can look at:
- actual hours of service from records of hours worked and hours for which payment is made or due (e.g., vacation, holiday, illness, etc.)
- an estimate of hours based on total days of service (i.e., the employee gets credited with eight hours of service for each day for which the person would be required to be credited with at least one hour of service), or
- an estimate based on total weeks of service (i.e., the employee gets credited with 40 hours of service for each week).
Figuring out the FTEs
You can determine the number of FTEs by dividing the total hours of service by 2,080. If the result isn’t a whole number, round to the next lowest number.
So, an employer with 25 or more employees may qualify for the credit if some of its employees work part-time. For instance, an employer with 46 half-time workers (paid wages for 1,040 hours) has 23 FTEs – and therefore qualifies for the credit.
This website can help you determine eligibility. Get IRS Notice 2010-44 here.