It may have started in southwest Florida, and the president even visited Fort Myers to address the issue, but we all know this challenging economy has spread throughout our country.  As a result, there has been a flurry of tax laws being passed by Congress and signed by the President, and the Internal Revenue Service has quickly issued guidance on the Small Business Health Care Tax Credit. Section 45R of the Internal Revenue Code (Code) offers a tax credit to small employers that provide health insurance coverage to their employees. Section 45R was added to the Code by section 1421 of the Patient Protection and Affordable Care Act enacted March 23, 2010. The Small Business Health Care Tax Credit is available for tax year 2010 and will expire on December 31, 2015. The credit is designed to encourage employers to offer health care coverage to their employees for the first time or maintain coverage already in place. The credit is specifically designed to target small businesses that primarily employ moderate and low income workers.

In order to qualify, an employer must 1) have fewer than 25 full-time employees for the taxable year; 2) have employees with an average annual wage of less than $50,000 per full-time employee; and 3) maintain a qualifying arrangement under which the employer pays the premiums for each employee enrolled in health insurance coverage in an amount equal to a uniform percentage of not less than 50 percent of the premium cost.

It is important to note that sole proprietors, partners in a partnership, shareholders owning more than two percent of an S-Corporation, and any owners of more than five percent of other business are NOT taken into account as employees for purposes of the credit. In addition, owner’s family members are also excluded in determining eligibility for the credit.

The Small Business Health Care Tax Credit is effective immediately; employers need to plan now in order to take advantage of it. For tax year 2010 through 2013, the maximum credit available is 35 percent of the premiums paid by eligible small business employers. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six years, four years under the first phase and two years under the second phase.

The maximum credit goes to smaller employers, those with fewer than 10 employees, paying annual average wages of $25,000 or less. The credit is completely phased-out for employers with more than 25 employees or annual average wages of $50,000 or more. The phase-out of the credit amount under section 45R(c) of the Code operates in such a way that an employer with exactly 25 full-time employees or with average annual wages exactly equal to $50,000 is NOT, in fact, eligible for the credit.

Example: Company X employs nine full-time employees with an average annual salary of $24,000 for 2010. Under a qualifying arrangement, Company X pays $12,000 in health care premiums for its employees. (This amount does not exceed the average premium for small group market in the employer’s state) and otherwise meets the requirements for the credit. Company X’s credit for 2010 is $4,200 (35 percent X $12,000).

The Small Business Health Care Tax Credit is claimed on an eligible small employer’s annual income tax return as a general business credit and offsets an employer’s actual tax liability for the year. Any unused credit amount can be carried back one year and carried forward 20 years. Since the effective date of the credit is 2010, any unused credit can only be carried forward.

It is the desire of Hill, Barth & King to keep businesses and individuals of Fort Myers, Cape Coral and the surrounding areas up to date on tax law changes that could have a significant impact on their financial well-being.

Please check back for future articles.

Julio Barina, CPA is a Supervisor with Hill, Barth & King LLC in the Fort Myers, Florida office. He has been with Hill, Barth & King, LLC, a top 75 accounting firm since relocating to Southwest Florida in 2006. Julio can be contacted by phone at 239-482-5522 or via email at jbarina@hbkcpa.com

During these rough economic times where expenses are increasing at a much faster rate than revenue is being collected, we are often asked for suggestions on how to reduce expenses.  For many employers, the largest expense on their profit and loss statement is employee salaries and benefits.  The cost of providing health insurance to employees proves to be a significant cost for many employers.  One alternative that allows employers to still provide health insurance to their employees but at a reduced cost is to utilize Health Savings Accounts (HSAs).

First introduced in the Tax Relief and Health Care Act passed in December of 2006, HSAs enable businesses to buy insurance coverage with a higher deductible and accordingly, a lower premium.  Additionally, employers and employees can make tax deductible contributions to HSAs.  The HSA grows tax-free, and tax-free distributions may be used to pay for qualified out-of-pocket medical expenses.  An added benefit is that the HSA becomes an investment vehicle.  Unused funds roll over from year to year, and when the owner reaches age 59 ½ he/she can take distributions from the HSA as if it were an IRA.

Recently, favorable tax law changes have made HSAs even more attractive.  For 2010, the health insurance plan must have a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage to qualify as a high-deductible plan.  In the past, contributions to an HSA were limited by the deductible amount.  That is no longer the case.  For 2010, the maximum HSA contribution is $3,050 for self-only coverage (even if the deductible is only $1,200) and $6,150 for family coverage.  Additionally, taxpayers 55 years old or older on December 31, 2010 can make an additional $1,000 contribution.  Depending on the taxpayer’s federal income tax bracket, this equates to savings of 10% to 35% of the contribution amount.

Another favorable change for 2010 is the determination of the eligibility period.  Previously, eligibility was determined on a monthly basis and the annual contribution amount had to be pro-rated.  Accordingly, if a taxpayer only had a high deductible health plan for 6 months, then his/her contribution was limited to 50% of the annual limit.  Now, if a taxpayer is eligible to make HSA contributions in the last month of the year, then he/she is deemed to have been eligible for the entire year and can contribute the full amount.  Finally, current owners of flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs) can roll over a distribution from these accounts into an HSA tax free.  It is important to note, however, that the plan documents for the respective FSA and/or HRA need to be amended to allow for rollover contributions.  Also, taxpayers may also have the option to make a one-time rollover from a traditional or Roth IRA into an HSA.
In evaluating whether HSAs can lower the overall cost of providing health care coverage for your employees, consider the impact of the higher deductible on the annual premium amount plus the cost of the HSA contribution.

This is just a brief overview of HSAs and the potential benefit they afford employers and their employees.  We would welcome the opportunity to discuss with you in detail the pros and cons.

Tara N. Ruska, CPA is a Supervisor with Hill, Barth & King LLC in the Fort Myers, Florida office.  Tara has worked as a CPA helping clients in Fort Myers, Cape Coral and other Southwest Florida communities for the past 10 years.  She has been with Hill, Barth & King LLC, a top 75 accounting firm, since 2004.  Tara can be contacted by phone at 239-482-5522 or email at truska@hbkcpa.com.

by R. Dean Piccirillo, CFP®, CRPS®, AIFA®
Principal/Senior Financial Advisor
HBK Sorce Financial LLC

I recently had the opportunity to provide a review to a prospective qualified retirement plan client. The plan assets were between 3 and 5 million and the underlying investments were separate accounts of a group variable annuity product. A variable annuity separate account will typically either invest its assets into a retail mutual fund or retain an outside money manager as a sub-advisor to manage the account’s assets.

There are some professional advisors working in the retirement plan arena that have a rather strong bias against group variable annuity products when being used as funding vehicles for qualified retirement plans such as 401(k)s. I am not personally one of those who feel that they should never be used. I have seen situations where these solutions have been a good fit for the plan sponsor.    (Read full article…)