Small businesses may qualify for tax credits that make it more affordable to provide health insurance to their employees. They also have some unique rights and responsibilities. Learn more here.


What is considered a small business?

In general, you are considered a small business if you have up to 50 employees. In some states, this will include you if you are self-employed with no employees. Contact your State Department of Insurance to find out whether this applies in your state.

Can I get tax credits for providing insurance to my employees? 

If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance. This will bring down the cost of providing insurance.

Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses. This makes the cost of providing insurance even lower.

Do I have to provide health insurance to my employees?

The Affordable Care Act does not require employers to provide health insurance for their employees.

The Employer Responsibility provision of the Affordable Care Act applies businesses with more than 50 full-time workers. To learn more read the Employer Bulletin on Automatic Enrollment, Employer Responsibility, and Waiting Periods.

What should the health insurance I offer to my employees cover?

It depends–states vary on what they require insurers to cover in small employer plans.Contact your State Department of Insurance for more information about small employer coverage requirements in your state.

What should I know when I am looking for health insurance for my employees?

If you are a small employer with 2-50 employees, health insurance companies cannot turn your business down based on the health status of your employees or their family members. This rule applies when you initially apply for small employer coverage and if you decide to change plans.

An insurer must also accept everyone in your group. Employees or family members (if you offer dependent coverage) with health conditions cannot be excluded from coverage.

Health insurance companies must sell you any small employer health plan they sell to other small employers in your state.

Contact your State Department of Insurance to learn more about your rights to getting and keeping small employer coverage.

What health insurance alternatives are available to my employees through the new law?

Starting in 2014, small businesses with generally fewer than 100 employees can shop in anAffordable Insurance Exchange—a new, transparent, competitive marketplace where individuals and small businesses can buy affordable, qualified health benefit plans. This gives small businesses power similar to what large businesses have to get better choices and lower prices for employee coverage.

Exchanges will offer more choices of high-quality coverage and lower prices.  Exchanges will offer a choice of plans that meet certain benefits and cost standards.

  • Small businesses will benefit from insurance with lower administrative costs compared to the choices available in the small business market today because they will be able to pool together.
  • Limits on insurance rating, such as no more rating based on employees’ health status or gender, will lower premiums for many small businesses.
  • The small business tax credits and the new competition promoted by Affordable Insurance Exchanges will help keep the cost of insurance down.

Do I have to pay more based on the health status of my group?

Most states, but not all, limit how much premiums can vary due to employees’ health status and other factors. Even within these limits, premiums can be significantly higher if someone in a small employer plan has a serious health condition.

Contact your State Department of Insurance for more information about small employer rating rules in your state.

Under the Affordable Care Act, this will change.  Starting in 2014, insurers won’t be allowed to charge more based on the health status of your group or the gender of your employees. There will also be limits on how much premiums can vary based on age.

Can an insurer cancel my small employer plan because one of my employees gets sick?

No, your insurance for the group (or for any member of the group) cannot be canceled because someone in your group becomes sick. This is called “guaranteed renewal.”

Do I have to report the cost of insurance in my employees’ W-2 forms?

Employers do not have to report the cost of insurance on employee W-2s in 2011. This reporting is optional in 2011.

The reporting requirement is intended to be informational and provide employees with greater transparency into health care costs. The amounts reported are not taxable.

Learn more about the W-2 reporting deferral from the IRS.

Reporting Income Payments Using Form 1099-MISC

Form 1099-MISC is used to report payments made in a trade or business.

By , About.com Guide     http://taxes.about.com/od/businesstaxes/qt/1099-Misc-Reporting-for-Miscellaneous-Payments.htm

Form 1099-MISCis used to report certain types of payments made in the course of a trade or business. If you’re in business or self-employed, you may need to submit this report to both the Internal Revenue Service and the person or business whom you paid.

When is Form 1099-MISC Required?

Businesses will need to fill out a Form 1099-MISC for persons, vendors, subcontractors, independent contractors, and others in the following circumstances:

$600 or more per year is paid for

  • cash payments to fishermen
  • crop insurance proceeds,
  • medical and health care payments,
  • prizes and awards,
  • proceeds paid to attorneys,
  • rents,
  • services (including parts and materials), and
  • other types of payments not covered by another information reporting document.

$10 or more per year is paid for

  • broker payments in lieu of dividends or tax-exempt interest, and
  • royalties

Reporting such payments is required if the recipient of the payment is not a corporation — for example, when the recipient is an individual, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations are required in the case of medical and health care payments and in the case of legal fees paid to attorneys. Other types of payments made to corporations may be reported using Form 1099-MISC, but is not required. 

Report Payments Made by Cash or Check, but Not Payments Made by Credit Card

Starting with the 2011 tax year, the IRS is instructing businesses that payments made via credit card and other third party payment processing services need not be reported on Form 1099-MISC. Refer to the Instructions for Form 1099-MISC1, especially the What’s New2section. 

Expanded 1099-MISC Reporting Starting in 2011 for Rental Property Owners Has Been Repealed

Rental property would have needed to issue a 1099-MISC for payments relating to their rental properties beginning in the year 2011, but this requirement has been repealed by the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 20113

Expanded 1099-MISC Reporting Starting in 2012 Has Been Repealed

1099 reporting would have been expanded starting with the year 2012, but this provision has also been repealed by the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011. Prior to repeal, reporting would have been expanded to include payments made to corporations and as well as to include payments for goods and property. The 1099-MISC expansion was originally legislated as part of the health care reform package4


Steps to Take to Prepare for 1099-MISC Forms

You should request that your vendors, contractors and other payment recipients submit to you a Form W-95. The W-9 will provide you with the legal name, address and taxpayer identification number for the vendor, which is the information you will need when preparing any 1099-MISC forms.You should also keep track of your payments in your bookkeeping system. You will need to know whether the payment falls under any of the categories listed above for reportable payments, whether your payments to a particular recipient reaches the $10 or $600 threshold for reporting, and finally you’ll need to know the exact amount you paid the recipient for the year.


Penalties for Filing Form 1099-MISC Late

The following penalties will be in effect for the year 2011:

  • $30 penalty for filing a 1099 not more than 30 days late;
  • $60 penalty for filing a 1099 more than 30 days late and before August 1;
  • $100 penalty for filing a 1099 on or after August 1;
  • $250 penalty for intentional failure to file.

These Form 1099-MISC penalties were increased as part of the Small Business Jobs Act6, and have not been repealed.

Deadlines for 1099-MISC Forms

  • Provide the recipient with his or her copy of the Form 1099-MISC by January 31 reporting income for the previous calendar year.
  • Mail the Form 1099-MISC to the IRS by February 28.
  • Or electronically file 1099s with the IRS by March 31.

Businesses can request a 30-day extension to file 1099s with the IRS using Form 8809. An extension does not permit additional time for providing the 1099 to the recipient. 

Form 1099-MISC Tax Resources