Small Business
Afintrix Advisory Analytics uses this small business resource to support engagements where entity identification, payroll delegation, health coverage credits, and self-employment exposure must be handled according to IRS standards for documentation, issue triage, and audit readiness.
This page provides small business guidance into a single structure so health care tax credits, third-party payroll arrangements, EIN control, and self-employment tax reporting are applied consistently across engagements involving small employers and self-employed taxpayers.
Small Business Health Care Tax Credit
This section preserves Affordable Care Act rules and IRS eligibility criteria for the Small Business Health Care Tax Credit (SBHCTC).
Under the Affordable Care Act, small businesses and tax-exempt organizations that meet specific qualifications are eligible for a Small Business Health Care Tax Credit.
The credit supports providing health insurance to employees for the first time or maintaining existing coverage, and the Small Business Health Care Tax Credit Estimator is used to determine eligibility for tax years 2014 and beyond and, when eligible, estimate the amount.
Eligibility conditions
Generally, you qualify for the credit if:
• You are a small business or tax-exempt employer.
• You pay at least half the cost of single coverage for your employees.
• You had fewer than 25 full-time equivalent (FTE) employees for the tax year.
• You paid average wages of less than 50,000 dollars a year per full-time equivalent, indexed annually for inflation beginning in 2014.
Starting in 2014, you also must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace, or meet a narrow exception to this requirement.
FTE employee determination
To determine if you have fewer than 25 FTE employees, you must consider how many hours each employee works.
For purposes of this credit, full-time is 2,080 hours per tax year (40 hours per week), and each employee counts as a maximum of one FTE, even if that employee works more than 2,080 hours.
Multiple part-time employees are combined to determine FTEs; for example, ten employees who each work 1,040 hours count as five FTE employees, and the Instructions for Form 8941 contain a worksheet for calculating total FTE employees.
How this affects you
As of tax year 2014, to qualify for this credit, you must purchase insurance for your employees through the SHOP Marketplace.
To claim the credit, tax-exempt organizations must file Form 990-T, Exempt Organization Business Income Tax Return, even if they do not normally file one, and for some tax-exempt organizations the SBHCTC is refundable, which means a refund can be issued when the credit exceeds tax owed.
Small businesses can carry the credit back or forward to other tax years, and for tax years 2014 and later the maximum credit is up to 50 percent of premiums paid for small business employers and up to 35 percent for tax-exempt organizations, with the credit only available for two consecutive years beginning in 2014.
Third-Party Arrangements for Employment Taxes
This section preserves TAS guidance on payroll service providers, reporting agents, aggregate filers, professional employer organizations, and associated risks.
What You Need to Know
Many employers use a third party to administer and manage some or all payroll and employment tax duties, including reporting, collecting, and depositing employment taxes with state and federal authorities.
Hiring a third party does not relieve the employer of employment tax filing, deposit, and payment obligations; the employer remains responsible for those obligations.
Payroll Service Providers and Reporting Agents
Payroll Service Providers (PSPs) help an employer administer payroll and employment taxes, often preparing employment tax returns for signature by employers or clients and paying associated taxes using the client’s Employer Identification Number (EIN) and the client’s funds.
Reporting Agents, authorized under Form 8655, Reporting Agent Authorization, typically sign and file the client’s returns electronically using each client’s EIN and pay employment taxes and make federal tax deposits through the Electronic Federal Tax Payment System (EFTPS).
Aggregate Filers and Professional Employer Organizations
Aggregate Filers, appointed by an employer on Form 2678, Employer/Payer Appointment of Agent, assume liability along with the employer for Social Security, Medicare, and federal income tax withholding, and file aggregate returns (electronic or paper) using the agent’s EIN.
Professional Employer Organizations (PEOs), sometimes called employee leasing companies or temporary staffing services, enter into agreements with a client to withhold, report, and pay employment taxes for workers performing services for the client and file employment tax returns in the PEO’s own name and EIN, but the client remains the employer and is responsible for withholding, reporting, and paying employment taxes.
What you should do
Third parties perform an important service in meeting filing deadlines, deposit requirements, and payment due dates, but using a third party does not relieve the employer of employment tax obligations.
Protecting against third-party failures
Prevent unauthorized address changes: a dishonest third party could change your IRS address of record to its own address without your knowledge to intercept IRS notices; the law requires the IRS to send confirmation of address changes to both the new and former address.
To reduce risk:
• Do not change your address of record to the third party’s address, to ensure you receive IRS correspondence about your account.
• If you discover your address was changed without authorization, notify the IRS immediately by calling the number on the IRS letter or bill, writing to the issuing IRS office, or visiting a local IRS office; if you cannot find the letter or bill, call the IRS Business Assistance Line at 800-829-4933.
• If you have concerns about your account status, call the Business Assistance Line at 800-829-4933 to check for unfiled returns or overdue deposits or payments.
Using EFTPS for oversight
Ensure your third party uses EFTPS; EFTPS automatically issues Inquiry PINs to clients of payroll service providers so clients can access the EFTPS account and verify timely, accurate deposits and payments.
If you did not receive a letter about your Inquiry PIN, you can register on EFTPS to obtain a PIN and verify payments, and once registered you have online access to 16 months of payment history.
If you are a victim of a third-party payroll tax return preparer
The law requires the IRS to give special consideration to an offer in compromise from a taxpayer defrauded by a third-party payroll tax return preparer, called an Effective Tax Administration (ETA) offer, which can allow settlement of the debt for less than the full amount even when assets exist that could otherwise pay the balance created by the third party’s actions.
During first contact with the IRS in such a situation, the guidance instructs you to:
• Indicate that your business is a victim of nonpayment by a third party payroll tax return preparer.
• Discuss an offer in compromise as an alternative to IRS collection action.
• Ask the revenue officer not to assert the trust fund recovery penalty, because funds lost to fraud in which you played no part should not result in that penalty.
How this affects you
When a third party goes out of business or misuses client funds, the employer remains liable for unpaid taxes and can be required to pay employment taxes twice: once to the third party and again to the IRS with interest and penalties.
Significant third-party failures can seriously harm clients and, if the business cannot recover, may force cessation of operations.
Getting an Employer Identification Number (EIN)
This section preserves IRS definitions, application channels, replacement procedures, and account closure rules for EINs.
An Employer Identification Number (EIN), also called a Federal Tax Identification Number, identifies a business entity for tax purposes when filing tax returns or making deposits, and generally businesses need their own identification number.
If your business is in the United States or a U.S. territory, you can apply for an EIN online, by mail, or by fax; international applicants can apply by phone, mail, or fax, but not online.
When a new EIN is required
Even if you already have an EIN, certain business events require a new one; generally, a new EIN is needed when ownership or structure changes, and reasons differ by entity type, so the IRS resource “Do You Need a New EIN?” must be consulted for details.
Lost or misplaced EINs can be recovered, and the source provides specific steps in the “What should I do?” section.
How to apply
Apply online: you can complete an EIN application online from 7:00 a.m. to 10:00 p.m. Eastern Time, Monday through Friday; this is the fastest method, and the system validates information and issues the EIN immediately.
To use the online application, the principal business, office, or legal residence must be in the U.S. or a U.S. territory, and the responsible party (principal officer, general partner, grantor, owner, trustee, and similar roles) must have a valid Social Security Number, ITIN, or EIN; the IRS cannot process an online application if the responsible party is an entity with an EIN previously obtained online.
Fax or mail
Apply by fax or mail by completing Form SS-4, Application for Employer Identification Number, and sending it to the IRS at the address or fax number listed under “Where to File Your Taxes” for Form SS-4 on IRS.gov.
If you provide a fax number on the application, you should receive a fax with the EIN within four business days; mailed applications take about four weeks to process.
Phone
Only international applicants can apply for an EIN by phone by calling 267-941-1099 (not toll-free) from 6:00 a.m. to 11:00 p.m. Eastern Time, Monday through Friday, and the caller must be authorized to receive the EIN and able to answer questions from Form SS-4.
Completing Form SS-4 before calling is recommended because the IRS employee will need that information, and the EIN can be issued by phone and used immediately to file a return or make a payment.
Daily issuance limit
The IRS limits EIN issuance to one per responsible party per day, and this applies to all requests whether online, by mail, or by fax.
If you have lost your EIN
If you have lost your EIN, you should look at: the original confirmation of your EIN application, previously filed tax returns, and any bank or agency records where you used your EIN to open an account or obtain a license.
You can also ask the IRS to search for your EIN by calling the Business & Specialty Tax Line at 800-829-4933, available 7:00 a.m. to 7:00 p.m. local time, Monday through Friday.
Closing an EIN account
EINs cannot be canceled and are not reused; if you received an EIN but later decide you do not need it, you can write to the IRS and request that it close your business account, for example if you received a number but never started the business or exempt organization.
Self-Employment Taxes
This section preserves IRS definitions of self-employment tax, filing thresholds, worker classification remedies, estimated tax expectations, and SSA record interaction.
Self-employment (SE) tax applies to people who work for themselves, is in addition to income tax, and covers Social Security and Medicare tax; the Social Security Administration uses information from tax returns to figure benefits and provide coverage under the Social Security system.
Who must pay SE tax
You must pay SE tax and file Form 1040 Schedule SE, Self-Employment Tax, if either of the following applies:
• Net earnings from self-employment were 400 dollars or more.
• Church employee income was 108.28 dollars or more.
Although SE tax is in addition to income tax, you can deduct one-half (50 percent) of SE tax as an adjustment to income on the front of the tax return, and for tax years after 2017 the deduction amount must also be reported on Form 1040 Schedule 1, Part II.
What it means to be self-employed
Any activity performed to make a profit is considered a business or trade and can be full-time or part-time, including activity in addition to a regular job; for example, being a full-time employee while operating a part-time lawnmower repair shop with your own shop, equipment, tools, and advertising is self-employment.
You can be self-employed as the owner or sole proprietor, a member of a partnership, or an independent contractor.
If you have self-employment income, you can be required to pay taxes quarterly; this is further addressed in the “How will this affect me?” section.
What you should do
Determine net income (profit) by taking all business income and subtracting business expenses or losses; some businesses maintain a profit and loss statement during the year for this purpose.
Generally, if your business or businesses have a net loss for the year (expenses exceeding income), SE tax does not apply.
Calculating SE tax
After determining net profit from all businesses, compute SE tax using Schedule SE (Form 1040), Self-Employment Tax, which walks through the SE tax calculation for different income types and assists in computing the deduction for one-half of SE tax; this deduction is reported on the front page of Form 1040 and, for years after 2017, also on Schedule 1, Part II.
Schedule SE must be sent to the IRS with the return, and the IRS instructions for Schedule SE are identified in the source as a key resource for understanding special SE rules.
Worker misclassification remedies
If you believe you have been incorrectly classified as an independent contractor, you can file Form 8919, Uncollected Social Security and Medicare Tax on Wages, to figure and report your share of uncollected Social Security and Medicare taxes.
You can also need to file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to request an IRS determination of your worker status.
How this affects you
If you are subject to SE tax and income tax, you are generally required to file an annual return and pay estimated tax quarterly; reviewing your business profit and loss during the year is important to determine whether estimated payments are required, and penalties can apply if withholding and estimated payments are insufficient or untimely.
Correctly reporting all self-employment income and paying SE tax is critical because SSA uses this information to calculate benefits; if the information is incorrect, benefits can be reduced, and SSA will only give credit for self-employment income reported on a tax return within three years, three months, and 15 days after the taxable year in which the income was earned.
After that time, SSA may change records only to remove or reduce amounts, which can negatively affect benefits.
Additional help and clinics
The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayer rights; TAS offers help if a tax problem is causing financial difficulty, if attempts to resolve issues directly with the IRS have failed, or when an IRS system, process, or procedure is not working as it should, and assistance is free when you qualify.
Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS and represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS; LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court and can provide information about taxpayer rights and responsibilities in multiple languages for individuals who speak English as a second language, with services offered free or for a small fee.
Further information and clinic locations are available on the LITC page and in Publication 4134, Low Income Taxpayer Clinic List.
Important Notes
These statements focus on small business credit eligibility, delegation risk, identification control, and self-employment exposure that materially affect compliance under the referenced IRS and TAS rules.
Eligibility for the Small Business Health Care Tax Credit depends on FTE counts, average wages, employer contribution levels, and SHOP Marketplace participation, and the credit is time-limited to two consecutive years beginning in 2014, with separate maximum percentages for small businesses and tax-exempt employers.
Use of payroll service providers, reporting agents, aggregate filers, and PEOs does not shift ultimate employment tax liability from the employer, and failures or fraud by third parties can leave employers owing employment taxes, interest, and penalties even after payment to the third party.
EINs are permanent identifiers; business events can require a new EIN but an existing number cannot be canceled, only associated accounts can be closed.
SE tax applies when self-employment thresholds are met even for part-time or side activities, and accurate reporting is directly tied to Social Security coverage and benefit calculations, with strict SSA time limits on retroactive credit for self-employment income.
TAS and LITCs provide structured escalation paths and representation for small businesses and self-employed taxpayers experiencing tax problems, financial hardship, or systemic issues in their interactions with the IRS.
Official References
- Internal Revenue Service
- Small Business Health Care Tax Credit and the SHOP Marketplace:
https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace - Small Business Health Care Tax Credit – Questions and Answers:
https://www.irs.gov/newsroom/small-business-health-care-tax-credit-questions-and-answers - About Form 8941, Credit for Small Employer Health Insurance Premiums:
https://www.irs.gov/forms-pubs/about-form-8941 - Form 8941 (PDF), Credit for Small Employer Health Insurance Premiums:
https://www.irs.gov/pub/irs-pdf/f8941.pdf - About Form 990-T, Exempt Organization Business Income Tax Return:
https://www.irs.gov/forms-pubs/about-form-990-t - Third-Party Arrangements for Employment Taxes:
https://www.taxpayeradvocate.irs.gov/get-help/small-business/third-party-arrangements-form-employment-taxes/ - Form 8655 (PDF), Reporting Agent Authorization:
https://www.irs.gov/pub/irs-pdf/f8655.pdf - Instructions for Form 2678, Employer/Payer Appointment of Agent:
https://www.irs.gov/instructions/i2678 - Employer Identification Number – overview and application methods:
https://www.irs.gov/businesses/employer-identification-number - Get an employer identification number:
https://www.irs.gov/businesses/small-businesses-self-employed/get-an-employer-identification-number - About Form SS-4, Application for Employer Identification Number:
https://www.irs.gov/forms-pubs/about-form-ss-4 - Self-employed Individuals Tax Center:
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center - About Schedule SE (Form 1040), Self Employment Tax:
https://www.irs.gov/forms-pubs/about-schedule-se-form-1040 - Schedules for Form 1040 and Form 1040 SR:
https://www.irs.gov/forms-pubs/schedules-for-form-1040 - About Form 8919, Uncollected Social Security and Medicare Tax on Wages:
https://www.irs.gov/forms-pubs/about-form-8919 - About Form SS 8, Determination of Worker Status:
https://www.irs.gov/forms-pubs/about-form-ss-8 - Independent contractor (self employed) or employee?:
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee - Recordkeeping for small businesses and self employed:
https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping - What Kind of Records Should I Keep?:
https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep - Gig Economy Tax Center:
https://www.irs.gov/businesses/gig-economy-tax-center - Health Insurance Marketplace / SHOP
- The Small Business Health Options Program (SHOP) Marketplace:
https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/ - The Health Insurance Marketplace – IRS:
https://www.irs.gov/affordable-care-act/individuals-and-families/the-health-insurance-marketplace - Electronic Federal Tax Payment System (EFTPS)
- EFTPS – U.S. Department of the Treasury / IRS tax payment system:
https://www.eftps.gov - Social Security Administration
- Social Security online services and account access:
https://www.ssa.gov - Taxpayer Advocate Service and Low Income Taxpayer Clinics
- Taxpayer Advocate Service – official site:
https://www.taxpayeradvocate.irs.gov - Low Income Taxpayer Clinics (LITC):
https://www.irs.gov/advocate/low-income-taxpayer-clinics - Publication 4134 (PDF), Low Income Taxpayer Clinic List:
https://www.irs.gov/pub/irs-pdf/p4134.pdf - Related TAS content referenced in the source
- Small Business Tax Highlights:
https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-business-tax-highlights/2025/04/ - Adjust Your Withholding to Ensure There’s No Surprises on Tax Day:
https://www.taxpayeradvocate.irs.gov/news/tax-tips/tas-tax-tip-adjust-your-withholding-to-ensure-theres-no-surprises-on-tax-day/
