Small Business Tax and Health Care Reminders for the 2014 Tax Season

As we head into the home stretch of the 2014 filing season, here are a couple of reminders related to returns that include Schedule C or other small business income tax returns.

Simplified Home Office Deduction
Beginning with Tax Year 2013 returns, a taxpayer may choose to calculate their home office expense by using the new simplified method thus removing the requirement to file Form 8829 (Expenses for Business Use of Your Home).

By using the new simplified method, the taxpayer may use a flat deduction amount of $5 per square foot for up to 300 square feet of their home for business purposes.

If this method is used, then the entire allowable home mortgage interest and property taxes may be claimed on Schedule A.

It is important to note that the criteria for claiming an office in home deduction does not change if the taxpayer chooses to use the simplified method.

For more details see the Simplified Option for Home Office Deduction page on IRS.gov and/or the 2014 Schedule C instructions for Line 30.

Small Business Health Care Tax Credit
The Small Business Health Care Tax Credit is available to businesses with fewer than 25 full time employees with average wages of less than $50,000. To be eligible, a qualifying employer must provide health insurance that covers at least 50 percent of the cost of single health care coverage for their employees.

Eligible small employers may claim this credit by completing Form 8941 (Credit for Small Employer Health Insurance Premiums) and including it with their 2013 federal tax return.

Credit is calculated on a sliding scale with a maximum credit of 35% of the employer's contribution that is made for their employees' health insurance premiums.

Maximum credit is available to employers with 10 or fewer full time employees and average wages of no more than $25,000. The credit is then reduced based on each additional employee and for each $1,000 increase in the average wages until the limits are reached.

For more information on the Small Business Health Care Tax Credit see the following:

• 2013 Form 8941 instructions
• What You Need to Know about the Small Business Health Care Tax Credit page on IRS.gov.
• IRS news article of March 10, 2014 encouraging small employers to take advantage of the Small Business Health Care Tax Credit.

Individual Requirement to Have Insurance and State Insurance Exchanges

As we near the open enrollment period for the individual insurance requirement, now is the time to become more familiar with what people without health insurance will need to do when October 1, 2013 arrives. Below are the highlights of what the Affordable Care Act requirements are for obtaining health insurance, how the enrollment process on a State Exchange will operate, and how the premium assistance subsidy will work.

Individual Requirement to Obtain Health Insurance

Everyone will be required to have health insurance that meets a minimum level of benefits beginning on January 1, 2014.

If a person does not obtain health insurance for 2014, they will be required to pay an additional tax when they file their 2014 Federal income tax return. The additional tax for 2014 will be calculated as the greater of:

• 1% of their income that exceeds their filing threshold based on their filing status; or
• $95 for the taxpayer and if applicable, the spouse and dependents not to exceed $285 for 2014. The additional tax for dependents under age 18 is $47.50 for 2014.

For a complete explanation of how the additional tax will be calculated, see the Individual Penalty for Not Having Health Insurance page on the CrossLink website.

State Exchanges and Premium Assistance Subsidy

People who do not have health insurance will be able to obtain it at the State Exchange located in their State of residence. The State Exchange will also determine the potential amount of premium assistance subsidy that individuals qualify for.

The subsidy is designed to help people pay for their 2014 health insurance premiums. It is essentially a pre-payment of the premium tax credit that will be calculated when they file their 2014 Federal income tax return.

Here is how the State Exchange will work:

• Most people will sign up with the exchange via the internet by creating an account and filling out an online application on their State Exchange's website.
• The Exchange will use the information from the application and their income from their 2012 Federal return to first determine if they are eligible for coverage under a government health insurance program such as Medicaid.
• If not eligible for a government program, the exchange will determine what their subsidy is.
• Finally, the person applying may select an insurance plan that is offered by their State Exchange.

For more information on State Exchanges, see the following pages on the Federal government's Healthcare.gov website:

• Welcome to the Marketplace
• Health Insurance Marketplace

Health Insurance Premium Subsidy
The Health Insurance Premium Subsidy is also known as the Advance Premium Tax Credit.

A person is eligible for a subsidy (advance premium tax credit) to help pay for their 2014 health insurance premiums if they obtain their insurance at a State Exchange and their income is between 100% and 400% of the Federal Poverty Line.

It is important to remind people that the subsidy does not pay for the entire premium and the subsidy is paid directly to the insurance company. Individuals must pay a minimum amount of the premium based on where they fall on the Federal Poverty Line.

The minimum amount a person must pay is calculated as a percentage of their income and it ranges from 2%, if they fall between 100% and 133% of the Federal Poverty Line, up to 9.5%, if they fall between 300% and 400% of the Federal Poverty Line.

For a more detailed explanation of how the subsidy is determined, see the Premium Assistance Subsidy page on the CrossLink website.