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2010 - 2011 Tax Reforms

 Small Business Tax Credit

The act  provides tax credits for small businesses and individuals designed to increase levels of health insurance coverage, as part of the IRC § 38 general business credit. Small businesses defined as businesses with 25 or fewer employees and average annual wages of less than $40,000 would be eligible for a credit of up to 50% of non elective contributions the business makes on behalf of their employees for insurance premiums (new IRC § 45R). Tax-exempt organizations would get a 35% credit against payroll taxes.

Employers with 10 or fewer employees and average wages of less than $20,000 would get 100% of the credit; it would be phased out, up to the 25-employee limit. The $20,000 average annual wages figure will be indexed for inflation after 2013. Five-percent owners under the section 416 top-heavy plan rules and 2% S corporation shareholders are not included in the definition of employee, but leased employees are counted.

This credit is available for tax years beginning after Dec. 31, 2009.


Increased penalties for failure to file partnerships or S corporations

Fees will increase to $195 per month per shareholder or partner for up to a maximum, of 12 months, for tax years beginning after Dec. 31, 2009.


Hiring Incentives to Restore Employment (HIRE) Act

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

This act starts on March 18, 2010.


Tax on Indoor Tanning Services

The act imposes a 10% tax on amounts paid for indoor tanning services (new IRC § 5000B). Like a sales tax, the tax will be collected from the person tanning when payment for the tanning services is made.

The provision applies to services performed on or after July 1, 2010.


Tax on HSA Distributions

The additional tax on distributions from a health savings account (HSA) or an Archer medical savings account (MSA) that are not used for qualified medical expenses is increased to 20% of the disbursed amount, effective for disbursements made during tax years starting after Dec. 31, 2010.

SIMPLE Cafeteria Plans for Small Business

The act establishes a SIMPLE cafeteria plan for small businesses. Under the provision, an eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self insured medical expense reimbursement plan, and benefits under a dependent care assistance program. Under the safe harbor, a cafeteria plan and the specified qualified benefits are treated as meeting the specified nondiscrimination rules if the cafeteria plan satisfies minimum eligibility and participation requirements and minimum contribution requirements.

The provision is effective for tax years beginning after Dec. 31, 2010.

 Information Reporting

The act requires employers to disclose on each employee's annual Form W-2 the value of the employee's health insurance coverage sponsored by the employer, effective for tax years beginning after Dec. 31, 2010.

Click Year To View Business Tax Reforms:

2012 - 2013

2014 - 2017

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