The IRS this week mailed postcards to more than four million small businesses and tax-exempt organizations to make them aware of the tax credits, which goes into effect this year, of the recently enacted small business health care tax credit. 

For tax years 2010 to 2013, the maximum credit is 25 percent of premiums paid by eligible tax-exempt employers and 35 percent of premiums paid by eligible small business employers. Eligible organizations are those with 10 or fewer full-time equivalent employees that pay annual average wages of $50,000 or less. The credit is completely phased out for employers that have 25 full-time employees or more or that pay average wages of $50,000 per year or more. To determine if your organization qualifies for the Small Business Health Care Tax Credit, follow the three simple steps on the IRS fact sheet.

For a tax-exempt qualified employer the amount of the credit cannot exceed the total amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages. The credit applies against income tax, not employment taxes. For tax-exempt employers, the credit for a year offsets only an employer’s actual income tax liability (or alternative minimum tax liability) for the year.  However, an unused credit amount can generally be carried forward 20 years. The IRS said it will provide further information for tax-exempt employers on how to claim the credit in the coming months.

Click here for more information about the tax credit.