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2 tax credits just for small businesses may reduce your 2017 and 2018 tax bills

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Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums

The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. For 2017, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $26,200 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,400.

The credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.) If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2017 may be a good idea. Why? It’s possible the credit will go away in the future if lawmakers in Washington continue to try to repeal or replace the ACA.

At this point, most likely any ACA repeal or replacement wouldn’t go into effect until 2019 (or possibly later). So if you claim the credit for 2017, you may also be able to claim it on your 2018 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.

2. Credit for starting a retirement plan

Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

If you didn’t create a retirement plan in 2017, you might still have time to do so. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 so you can potentially take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.

Determining eligibility

Keep in mind that additional rules and limits apply to these tax credits. We’d be happy to help you determine whether you’re eligible for these or other credits on your 2017 return and also plan for credits you might be able to claim on your 2018 return if you take appropriate actions this year.

IRS extends deadlines for ACA information reporting

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Under the Affordable Care Act (ACA), certain employers must report health care plan information to the IRS and employees. Specifically, Forms 1094/1095-B (B Forms) and Forms 1094/1095-C (C Forms) may need to be submitted for the 2017 tax year. The agency recently extended submission deadlines for these forms under some circumstances. Let’s delve into the details.

Background

The B Forms are filed by minimum essential coverage providers — mostly insurers and government-sponsored programs, but also some self-insuring employers and others. The C Forms are filed by applicable large employers (ALEs — generally, employers that employed 50 or more full-time employees or the equivalent during the previous year) to provide information the IRS needs to administer the ACA’s employer shared responsibility and premium tax credit provisions. ALEs with self-insured health plans also report coverage information on Form 1095-C. Forms 1095-B and 1095-C must also be furnished to employees.

General extension

The IRS recently issued Notice 2018-06 to announce limited relief for information reporting on Forms 1094 and 1095 for the 2017 tax year. The deadline for furnishing Forms 1095-B and 1095-C to employees has been extended by 30 days, from January 31 to March 2, 2018. Because of this automatic extension, the discretionary 30-day extension isn’t available, and no further extensions may be obtained.

The notice doesn’t, however, extend the due date for filing Forms 1094-B and 1094-C (and accompanying Forms 1095) with the IRS. Accordingly, the deadlines remain February 28, 2018, for paper filings and April 2, 2018, for electronic filings. (Electronic filing is mandatory for employers required to file 250 or more Forms 1095.) However, filers may obtain an automatic 30-day extension by filing Form 8809 on or before the regular due date.

Good faith relief

Also, the IRS will again provide penalty relief for employers that can show they have made good faith efforts at compliance. No penalties will be imposed on employers that report incorrect or incomplete information — either on statements furnished to employees or returns filed with the IRS — if they can show they made good faith efforts to comply with the reporting requirements.

The notice specifies that the relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other required information. Penalty relief isn’t available to employers that:

  • Fail to furnish statements or file returns,
  • Miss an applicable deadline, or
  • Otherwise don’t make good faith efforts to comply.

Evidence of good faith efforts may include gathering necessary data and transmitting it to a third party to prepare the required reports, testing the ability to transmit data to the IRS, and taking steps to ensure compliance for the 2018 tax year.

Total compliance

If your organization self-insures or is defined as an ALE for the 2017 tax year, make sure you’re in total compliance with the ACA’s information reporting requirements. Our firm can help you with the pertinent details.

Repatriating income to the U.S. has benefits.

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The Tax Cuts and Jobs Act (TCJA) imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. Certain corporations must now increase their subpart F income by the amount of their deferred foreign income. Code Sec. 965, enacted as part of the TCJA, contains a loophole that allows taxpayers to convert such income so it becomes taxable at 8% (instead of the original 15.5%). This applies to the last tax year that began before Jan. 1, 2018.

New Tax Tables Available

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Employers and employees: Withholding tables reflecting Tax Cuts and Jobs Act (TCJA) changes are now available, and employees could see paycheck changes by February. The IRS has issued new income tax withholding tables for 2018 and advised employers to begin using them as soon as possible, but no later than Feb. 15. Find the IRS’s information release at http://bit.ly/2D2ihJn and the percentage method tables themselves in IRS Notice 1036 at http://bit.ly/1Ne91he Answers to frequently asked questions about using the new tables can be found at http://bit.ly/2D5iWJm