New IRS Guidance – The Small Business Health Care Tax Credit

Section 45R of the Internal Revenue Code (“Code”) offers a tax credit to certain small employers including tax-exempt organizations that provide health insurance coverage to their employees. The credit is effective for taxable years beginning in 2010.

Section 45R was added to the Code by section 1421 of the Patient Protection and Affordable Care Act (“Affordable Care Act”), enacted March 23, 2010. In Notice 2010-44 recently issued by the IRS, the IRS provides guidance on section 45R and what requirements must be met to qualify for the credit. This article discusses these requirements as described in the Notice.

Employers Eligible for the Credit

An employer is eligible for the credit if (1) the employer has fewer than 25 full-time equivalent employees (“FTEs”) for the taxable year, (2) the average annual wage of its employees for the year is less than $50,000 per FTE, and (3) the employer pays at least 50 percent of the premiums of the health insurance coverage for their employees. However, a federal or state employer is not an eligible small employer for purposes of the credit unless it is a section 501(c) non-profit organization.

Specifically, we can determine whether an employer is eligible for the credit by following the array of steps set forth in Notice 2010-44:

Determine the employees who are taken into account for purposes of the credit.

Determine the number of hours of service performed by those employees.

Calculate the number of the employer’s FTEs.

Determine the average annual wages paid per FTE.

Determine the premiums paid by the employer that are taken into account for purposes of the credit.

Determining the Employees Taken into Account for Purposes of the Credit

Generally, employees who perform services for the employer during the taxable year are taken into account in determining the employer’s FTEs, average wages, and premiums paid. However, certain individuals are not taken into account as employees for purposes of the credit.

Accordingly, their wages and hours are disregarded in determining the FTEs and average annual wages, and the premiums paid on their behalf are not counted in determining the amount of the credit. These excluded individuals include 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 businesses. Family members of these owners and partners are also not taken into account as employees. A family member is defined as a child, sibling, step-sibling, parent, step-parent, a niece or nephew, an aunt or uncle, or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. Any other member of the household of these owners and partners who qualifies as a dependent for tax purposes is not taken into account as an employee.

Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer more than 120 days during the taxable year.

Determining the Number of Hours of Service Worked by Employees for the Taxable Year

An employee’s hours of service for a year include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer during the employer’s taxable year and (2) each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity including disability, layoff, jury duty, military duty, or leave of absence. Only a maximum of 160 continuous hours may be counted as hours of service worked by employees for periods of vacation, holiday, illness, or incapacity.

In calculating the total number of hours of service which must be taken into account for an employee for the year, the employer may use any of the following methods: (1) determine actual hours of service from records of hours worked and hours for which payment is made or due, (2) use a days-worked equivalency whereby the employee is credited with 8 hours of service each day, or (3) use a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week. The number of hours per employee cannot exceed 2,080 hours.

Calculating the Number of an Employer’s FTEs

We demonstrate by example. Consider an employer during the 2010 taxable year who pays 5 employees wages for 2,080 hours each. The employer’s FTEs would be calculated by multiplying 5 by 2,080 and dividing by 2,080, which equals 5 FTEs.

In some circumstances, an employer with 25 or more employees may qualify for the credit if some of its employees work part-time. For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and, therefore, may qualify for the credit.

Determine the Average Annual Wages Paid per FTE

We demonstrate by example. For example, during the 2010 taxable year, an employer pays $224,000 in wages and has 10 FTEs. The employer’s annual wage paid per FTE is $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000).

Determining the Premiums Paid by the Employer for the Taxable Year

Only premiums paid by the employer for health insurance coverage are counted in calculating the credit. For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent paid by the employer is taken into account in calculating the credit. In calculating the credit for a taxable year beginning in 2010, an employer may count all premiums paid by the employer during 2010, including premiums paid during 2010 before the Affordable Care Act was enacted.

Small businesses may receive the credit not only for regular health insurance but also for add-on dental and vision coverage.

The amount of an employer’s premium payments that are taken into account in calculating the credit is limited to the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State in which the employer offers coverage were substituted for the actual premium. For example, if an eligible small employer pays 80 percent of the premium for coverage provided to employees (and employees pay the other 20 percent), the premiums taken into account for purposes of the credit are the lesser of 80 percent of the total actual premiums paid or 80 percent of the premiums that would have been paid for the coverage if the average premium for the small group market in the State were substituted for the actual premium.

Maximum Credit Amount and Credit Phaseout

For taxable years beginning in 2010 through 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible small employers that are tax-exempt organizations.

The maximum credit goes to smaller employers – those with 10 or fewer FTEs – paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Health Insurance – Get Insurance Online

In the today’s tech -savvy world today where everything is just a click away be it booking your international trips or buying products online. Just imagine, how brilliant it would be if you could tackle all your health related problems online and have someone with you who will take care of your health issues right from suggesting the right nutrition for you to arranging a doctor in case of emergency and even get hold of the expenses incurred during the illness. This all is possible now with the launch of this new product which provides all these facilities.

Health insurance has now become much more easier as you can just go online make a claim, get free online health insurance quotes, compare health plan prices and benefits side-by-side with the help of health calculator, select from a large selection of health insurance plans, and apply for health insurance online. What more, you can even know about your Health Risk Assessment in just few simple steps where you will be required to share a few details about your lifestyle and daily nutrition and get an instant assessment of your health and the ways you can improve it. Not only all this, you can also take advantage of the health factsheets available online, carefully validated by top medical professionals, which will provide information on particular health conditions which are prevailing amongst people and are quite common like heart problems, diabetes, high blood pressure and even facts for pregnant women.

By getting yourself health insured you not only will be preparing yourself for emergency conditions but will also save on huge amount of expenses which are normally incurred during the illness period including the hospital costs and health check- ups. A good fact about getting the health insurance policy is that you will get tax benefits and will be exempted from that.

How to Calculate Body Mass Index

Body mass index, also known as BMI, is a calculation to help determine whether or not you are overweight. The calculation takes into consideration your weight in relation to your height, and comes up with a number that is an accurate barometer as to whether or not you need to lose weight.

Many health websites are equipped with a BMI calculator that does the work for you. With a BMI calculator, all you have to do is enter your height and weight, and the tool pops out your final BMI reading. A body mass index of 18.5 or less means you are underweight. A healthy weight falls between 18.5 and 24.9, with the overweight category between 25 and 29.9. If you have a body mass index over 30, it means you are technically obese. Some people with BMI readings into the 30’s and 40’s may be eligible for weight loss surgery to help correct the problem before they suffer serious health consequences.

If you are unable to get to a website that has a BMI calculator, you can figure out your reading manually. All you need is a piece of paper, a pencil and a regular calculator. Using your imperial measurements, the calculation is as follows: Weight in lbs / (height in inches x height in inches) x 703. The metric calculation is as follows: Weight in kg / (height in meters x height in meters). As an example, for a 180 lb person who is 5’6, or 66 inches tall, the calculation would be 180 / (66 x 66) x 703, which equals a BMI of 29. For a metric reading, a person who is 65 kg and 1.7 meters tall would read 65 / (1.7 x 1.7) which equals a BMI of 22.5. Figuring out your BMI manually is accurate and will give you a true reading, but a BMI calculator is much more convenient if you’re able to find one.

In some cases, a BMI reading will suggest weight loss is necessary when it really is not. For people who train regularly with weights, their muscularity will add weight that the BMI calculator can’t differentiate from fat. If a weight lifter or bodybuilder is of average height, the BMI reading may suggest he is obese, when that definitely is not the case. On the other side, some older people who have lost quite a bit of muscle may get a BMI reading that is lower than their overall fat content would indicate. Weight loss may be a wise choice, but the BMI numbers won’t agree.

However, in the majority of cases, your BMI number is a true reflection of the state of your body composition. It is important for people with a high BMI to lose weight, as carrying added pounds is associated with health risks such as arthritis, heart disease, stroke and type 2 diabetes. Punch your height and weight into a BMI calculator online, or figure out your BMI manually to help gauge whether it is time to lose weight or if everything is just fine.

How to Calculate LTIFR and Other Health and Safety Indicators

Knowing how to calculate LTIFR and other safety indicators is an important skill to have if you work in the health and safety field. Despite the fact that these indicators don’t reveal a great deal of useful information managers love them and will insist on knowing what they are. They will use them to measure internal health and safety performance and to compare you’re company’s performance with other companies. These are not difficult to calculate and this can be made even easier if you use a spread sheet.

Health and Safety Indicators

Broadly speaking, common health and safety indicators can be divided into two – frequency rates and incidence rates. So what’s the difference?

A frequency rate is an expression of how many events happened over a given period of time by a standardised number of hours worked. An incidence rate is the number of events that happened over a given period time by a standardised number of employees (usually lower than the standardised number of hours). For example, an LTIFR which stands for Lost Time Injury Frequency Rate, is the number of Lost Time Injuries (LTI) that occurred over a period time per 1 000 000 or 100 000 or some other number of hours worked in that period. This could be over a month or a quarter or a year depending on the reporting requirements of your business. To convert this to an incidence rate just substitute the number of employees for the number of hours.

A lot of things are presented in this manner. As well as lost time injuries there are Medical Treatment Injuries (MTI) another is significant injuries which are often categorized as LTIs plus MTIs. A slight variation is the severity rate which is usually a measure of the amount of time lost due to work related injury by some standardised figure that is used to indicate the severity of injuries.

Calculating Frequency Rates

The formula to calculate these indicators is really very simple. Let’s say we want the number of lost time injuries per 1 000 000 hours worked for the last year. You need to get two pieces of information – the number of LTIs that happened in the last year and the number of hours worked in the last year. You could probably get the number of LTIs from your workers compensation claims manager or insurance company and your payroll section should be able to tell you the number of hours worked over the period.

Multiply the number of LTIs by 1 000 000 and divide the result by the number of hours worked and there you have it – the LTIFR. To show it using numbers. Say there were 7 LTIs in the past year and 2 451 679 hours worked. So, 7 X 1 000 000 = 7 000 000. Divide that by 2 451 679 and you get 2.86 – go on, grab your calculator and try for yourself.

What does that mean? It means that this business experienced 2.86 LTIs for every 1 000 000 hours worked over the past year.

Calculating Incidence Rates

Now, to calculate the LTIIR (Lost Time Injury Incidence Rate) which is the number of LTIs per 100 (or whatever figure you want) employees we just substitute the number of employees for the number of hours and multiply the number of LTIs by the standardizing factor which is 100.

So say this mythical business had 791 employees, we get 7 X 100 = 700. Divide this by the number of employees – 791 – and we get 0.88. So for every 100 employees this firm experienced 0.88 LTIs.

Calculating Severity Rates

Finally the severity rate. Depending on how this is expressed you will need at least the information from above and the number of work days lost over the year. Say its 73. Most often the severity rate is expressed as an average by simply dividing the number of days lost by the number of LTIs. So, using the figures we have we get 73 divided by 7 which gives 10.43. That is, on average each LTI will result in 10.5 days off work. It can be converted to a frequency or incidence rate by multiplying the result by a standardizing factor. This, of course will increase the result which is why you don’t see it very often – who wants a severity rate of 104 days off per 100 LTIs?

So there you have it. Not very hard and if you know even a little bit about spreadsheets you can easily insert the formulas into specific cells to calculate these indicators automatically.