Small Employer Health

Insurance Credit

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Tax Credits to Certain Small Employers That Provide Insurance

Tax credit (i.e., a dollar-for-dollar reduction in tax) for non-elective contributions to purchase health insurance for their employees.

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Small Business Employers Eligible for the Credit

A business must offer health insurance and contribute at least half the total premium cost.

Have no more than 25 full-time equivalent employees (“FTEs”).

Employees must have annual full-time equivalent wages that average no more than $50,000.

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Years the Credit is Available Initially available for any tax year

beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance is health

insurance purchased from an insurance company licensed under state law.

After 2013, the credit is only available to an eligible small employer that purchases through a state exchange and is only available for two years.

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Calculating the Amount of the Credit Tax years beginning in 2010, 2011, 2012,

or 2013, is generally 35% of the employer’s non-elective contributions.

Credit phases out as firm-size and average wages increase.

Tax exempt small businesses eligible for payroll tax credits of up 25% for 2010, 2011, 2012, or 2013.

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Credit is Reduced for an ESE: It has more than 10 FTEs but not more

than 25 FTEs. Average wages per employee is

between $25,000 and $50,000.

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Excluded Employers A sole proprietor, a partner in a

partnership, a shareholder owning more than 2% of an S Corporation, any owner of more than 5% of other businesses, a family member of any of these individuals, or a member of such a business owner’s or partner’s household.

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Hours of Service Worked Each hour for which an employee is paid

The performance of duties for the employer; For vacation, holiday, illness, incapacity

(including disability), layoff, jury duty, military duty or leave of absence.

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Hours of Service Worked – Use Any of Three Methods

Actual hours of service from records of hours worked.

Use a days-worked equivalency. Use a weeks-worked equivalency.

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Finding the Number of FTEs FTEs is found by dividing

The total hours of service; By 2,080; Rounded to the next lowest whole number.

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What is Health Insurance Coverage Pre-2014 years, health insurance

coverage for purposes of the Code Sec. 45R credit means benefits consisting of:

Medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer;

Limited-scope dental or vision, long-term care, nursing home care, home health care, community –based care, or any combination thereof;

Coverage only for a specified disease or illness; Hospital indemnity or other fixed indemnity insurance; Medicare supplemental health insurance; and certain other

supplemental coverage, and similar supplemental coverage provided to coverage under a group health plan. (Notice 2010-44, Sec. II.G.)