It’s not too early for small business owners to begin planning to take advantage of various tax-saving opportunities when they file their 2014 federal income tax returns. In addition, substantial relief from past payroll tax obligations is available to eligible employers who agree to reclassify their workers as employees in the future. Here are further details.
Credit Helps Small Employers Provide Health Care Coverage
Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. First available in 2010, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014. Targeted to small employers that primarily employ low-and moderate-income workers, the maximum credit, in tax-years 2010 through 2013, is 35 percent of premiums paid by small businesses and 25 percent of premiums paid by tax-exempt organizations.
In 2014, the maximum credit rate rises to 50 percent for small businesses and 35 percent for tax-exempt organizations. In addition, the small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace (or through a direct enrollment process if available).
Many Employers Can Qualify for Substantial Payroll Tax Relief
Many businesses can now resolve past worker classification issues at a low cost by voluntarily reclassifying their workers. Better yet, they don’t have to wait for an IRS audit to do so.
By prospectively reclassifying workers, making a minimal payment and meeting a few other requirements, eligible businesses can achieve greater certainty for themselves, their workers and the government. More than 1,500 employers have applied to participate in the IRS Voluntary Classification Settlement Program (VCSP) since it was launched in September 2011.
The VCSP is available to many businesses, tax-exempt organizations and government entities that currently treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees in the future. To be eligible, an employer must:
- Consistently have treated the workers in the past as nonemployees,
- Have filed all required Forms 1099 for the workers for the previous three years
- Not currently be under audit for employment taxes by the IRS
- Not currently be under audit by the Department of Labor or a state agency on the classification of these workers. If either IRS or Labor previously audited the employer on the classification of the workers, the employer must have complied with the results of the audit and not currently be contesting the classification in court.
Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. It’s that simple. Moreover, employers will not be audited on payroll taxes related to these workers for prior years.
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