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IRS health care notices hitting mailboxes

If IRS Notice 1397 shows up in your mailbox, don't panic.

The postcard (an excerpt of which is shown below) doesn't mean you're in tax trouble. Neither does it indicate the IRS is about to audit you.


Rather, it's the agency's effort to let small businesses and tax-exempt organizations know that they might be eligible to claim the recently-enacted small business health care tax credit. More than 4 million of the cards are in the mail.

The tax break is part of the health care reform measure, officially known as the Patient Protection and Affordable Care Act, that was signed into law last month.

An early health care change: The credit, which takes effect this year and can be claim on 2010 returns filed in 2011, is one of the first new health care provisions to go into effect.

It was created in an effort to encourage smaller companies that haven't before offered health insurance to their employees to now do so. For businesses that have been providing worker coverage, lawmakers hope the credit will ensure they keep up that benefit.

"Our postcard mailing, which is targeted at small employers, is intended to get the attention of small employers and encourage them to find out more," said IRS Commissioner Doug Shulman in announcing the postcard mailing last week. "We urge every small employer to take advantage of this credit if they qualify."

Who can claim it? In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

For tax years 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 tax-exempt organizations.

The maximum credit goes to companies that employ 10 or fewer full-time equivalent (FTE) employees and pay annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

The credit is completely phased out for employers with 25 or more FTE workers or firms that  pay average wages of $50,000 per year or more.

More company coverage/credit info: If you haven't received the postcard yet or are an individual taxpayer and just want to see it, the IRS has posted it as a PDF file.

The agency also has created a table showing how many of the postcards it is sending out to each state.

The IRS also has posted additional information for businesses on the credit, including a step-by-step guide to claiming it, as well as answers to frequently asked questions. 

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Shane Eloe

Looks like I can expect to see these postcards in the stack of necessary information I receive from clients for taxes next year? (Or I might expect to get some phone calls about these)


Great post! Just wanted to let you know you have a new subscriber.

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