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.

BMI Calculator for Females: How Much Body Fat Do You Have?

The BMI calculator for females is actually the same as for males, which is one of the reasons people sometimes question the validity of its use for everyone over the age of 20. However, regardless of the critics, the BMI or Body Mass Index is still a good way to get a general overview of your health and whether you are overweight (or underweight) for your height.

To calculate your BMI you need to know your height and weight. You can do this using pounds and inches or kilograms and meters, whichever you are most familiar with.

Kilograms are simpler, so let’s start there. Take your height in meters and multiply it by itself. So, if you are 1.6 meters, you will calculate 1.6 x 1.6 which equals 2.56. Next take your weight in kilos and divide by that multiplication figure. So, if you are 75 kilos, divide by 2.56 and your BMI is 29.29.

The calculation for pounds and inches is very similar. Multiply your height in inches by itself. Take your weight in pounds and divide by that multiplication, then multiply that figure by 703.

A healthy BMI is considered to be between 20 and 25. Under 18.5 you are considered underweight, while between 25 and 30 would be overweight. A BMI score over 30 puts you in the obese category.

Based on our calculation above that means you would fall in the top end of the overweight category, but just because you fall outside the healthy number range doesn’t mean you have a problem. For example, the BMI cannot tell the difference between muscle and fat, and if you have a BMI higher than 25 but have a lot of muscle and very little fat, you are not likely to be overweight or obese.

The BMI calculator for females is not terribly accurate for determining the overall percentage of fat in the body and was developed as a simple way to determine body fat in large groups of people. We are all different shapes and sizes so make sure you use it as a quick reference only. If you want a more accurate determination of your health, consult a doctor or health professional. Many gyms will offer skin fold tests to calculate your body fat more precisely.

Remember, take your BMI result as an indication of how much body fat you have but don’t rely on it as the final word on your health.

How a Social Impact Calculator on Aging Can Help Your Community

Many of our communities have been involved with Community Needs Assessments, Community Health Needs Assessments, Community Economic Development Plans, and ongoing planning for the built environment. All of these planning lenses are helpful ways to look at communities, and build for the future. One of the most important lenses to use for community planning for the next 10 to 20 years is the projected impact of aging on our communities, counties and states. What will is mean for a state to move from being 39th in proportion of older adults in 2010, to being 4th by 2030? What does it mean for a county to have a population shift that includes an increase of older adults by over 100% in the next 10 years, along with a projected reduction of people under 40 years old?

Understanding the Demographic Trend

The demographic trend has been called by many names, such as the “Age Wave,” or “Silver Tsunami,” with arguments in meetings and on blogs about whether those terms are helpful or pejorative, descriptive or ageist. In addition, some people find the terms “elderly” difficult, while others find “seniors” to be patronizing. Once people have dealt with parsing the grammatical minefield, then the most important issues are to understand both the demographic trend and other substantive factors.

Although a few in the field indicate that the aging of the population is rather slow and easily absorbed, the vast majority of experts agree that this is a significant, fast-moving trend that will not be easily absorbed. Research I’ve conducted has covered everything from future health professional shortages and health system gaps to the built environment, funding and policy trends. The potential impact of the aging of our population on communities and states is significant. It will require proactive, sustained responses at community, state and national levels.

Some communities and states are better positioned to respond to this trend than others.

Impact Also Depends on a Few Other Key Factors

The ability of groups to effectively respond depends upon a number of other key factors. Although the demographic trend is the primary issue, other important factors impacting our ability to respond include the following:

  • Overall community health;
  • Poverty levels, average and median incomes (especially for middle aged and elderly);
  • Local municipal budgets, economic ratings, and taxing capacity;
  • Legislation, policies, and funding related to both aging and community development;
  • Regional infrastructure and built environment.

The impact of the demographic trend is also shaped by the state of community and regional planning already in place to deal with the impact of aging upon our communities. Leadership and citizen engagement are also important factors that could help drive and mobilize initiatives. Leaders can and should respond. The issues are complex, but not overwhelming. However, they need to be addressed proactively.

How a Social Calculator can Predict the Potential Impact of Aging for Communities and States

Many of these factors have been analyzed by our team through a number of aging related research and planning projects over the past few years. We are now completing an Aging Social Impact Calculator that can provide an initial scan of the local environment, and the state environment. It looks at key factors that shape a county’s or state’s social, economic, and community health.

Research projects that I’ve recently completed demonstrate that the Social Determinants of Health, health rankings, economic benchmarks and policy issues either help communities and states to move forward, or serve as additional challenges.

Social Determinants. The Social Determinants shape us as individuals, families and communities. They include things such as family income, jobs, poverty and financial assets. Income, assets, poverty, and unemployment have been demonstrated to be some of the most important shapers of family and community health, health disparities, and health equity. Race and ethnicity have been seen as extremely important by the World Health Organization, U.S. federal government bureaus, and the health research and funding community. Individual, family and community educational levels are also significant. Taken together, or aggregated, one finds community snapshots that reflect the local economy, jobs and poverty; racial and ethnic mix; and educational levels. They help to predict how our lives will be shaped in the future.

Community and State Health Rankings. Communities and states are rated on their overall health by many research groups. One of the key national ratings used is the Robert Wood Johnson Foundation’s (RWJ) annual County Health Rankings and Roadmaps. They provide excellent state and county ratings based upon an analysis using more than a few dozen separate indicators. That ranking provides extremely important information to help determine whether an area faces significant health disparities and inequities. Rankings can tell planners whether community health challenges will pose additional difficulties that negatively impact the community’s ability to respond to the aging trend; or whether the positive community health will facilitate communities to implement strategies to respond. These health rankings can help inform plans that more effectively address key issues.

Economic Benchmarks. Communities are very much shaped by large and small economic trends. Short and long-term economic ratings provide a picture of community economic health. Counties and states with strong economic ratings have more ability to respond to these challenges than do those with a weak economic picture. Communities that face a loss of jobs and capital, and a diminishing tax base, are not as well positioned to respond to the Age Wave as communities that have a different economic picture.

Other factors that can also help predict the impact of the demographic trend include whether or not a region has a net population loss. Areas that are losing population also begin to lose jobs and infrastructure over time, unless this can be proactively addressed.

Laws, policies, legislative initiatives and funding priorities and strategies can also shape how well a local community or state is able to respond to this trend. Policies and funding that support economic development, the built environment, and services for older adults provide an environment that facilitates a community or county’s proactive response to this demographic trend.

The Power of Collective Impact

The combined, or collective impact of (1) demographic trends, (2) Social Determinants, (3) health rankings, (4) local and state economies, and (5) policies together shape a region’s sustainability. They also can serve as general predictors of how hard hit a community may be by the aging of the population. Taken together, these factors provide a picture of what may happen for communities, counties and states. They help us understand current and projected collective impact.

Aging Social Impact Calculator

The Aging Social Impact Calculator looks at states and counties, and provides an initial prediction about the level of impact you may expect from the aging of the population in your region. Some of the most important benchmarks that make up the predictive picture include:

  • Demographic Factors
  • Social Determinants of Health
  • County Health Ranking (Health Outcomes and Health Risk Behaviors)
  • County Economic Picture
  • Policy and Funding Framework

Working with a Predictor

Any social impact calculator has predictive capabilities. Many economic calculators have been used successfully by the World Bank, the Low Income Investment Fund, and others. The Robert Wood Johnson’s County Health Rankings and Roadmaps and state level health department profiles (like the New Mexico Community Snapshots) provide pictures of community health that capture both the present and the near future. The Aging Social Impact Calculator offers snapshots of projected impact on a community, and the community’s strengths and weaknesses in that will affect its ability to respond. It provides a helpful picture of local and state capacity, which can help leaders to choose priorities that fit their capacity to respond.

Predictors offer a holistic general picture that can serve as an important starting point for communities and states to respond to the needs of older adults. They serve as broad frameworks or roadmaps. Once a predictor profile is developed, then community leaders can look deeper into the community to:

  • Understand and address key issues;
  • Choose priorities, and create the size and scope of a response that fit community capacity;
  • Build upon community strengths and assets;
  • Reduce risks;
  • Create plans that bring stakeholders together and leverage resources.

Every state and community has its own unique assets that can be utilized to respond to this issue, which are complex, and difficult to measure with a social impact calculator. These include the rich family and social networks, community leaders, volunteers, faith communities and civic organizations that represent significant community assets.

1. The term “Age Wave” was coined by Ken Dychtwald decades ago to capture the coming demographic trend that was then on the horizon, and is now a reality.

2. Social Determinants of Health were developed by the World Health Organization, and utilized by major institutions (U.S. Department of Health and Human Services, Kaiser Foundation) and key research organizations throughout the U.S. to deal with community health in a holistic way.