1. Which employers are eligible for the small employer health care tax credit?
Small employers that provide health care coverage to their employees and the meet the following certain requirements:
1) Fewer than 25 full time equivalent employees for the tax year
2) Average annual earnings of its employees must be less than $50,000 per FTE
3) Employer must pay premiums under a "qualifying arrangement"
2. Can tax-exempt organizations be a qualified employer?
Yes. However, special rules apply in calculating the credit for a tax-exempt qualified employer. An employer that is an agency or instrumentality of the federal government, or of a State, local or Indian tribal government, is not a qualified employer unless it is an organization described in Code section 501(c) that is exempt from tax under Code section 501(a).
3. What expenses are counted in calculating the credit?
Only premiums paid by the employer under the arrangement meeting certain requirements (listed above) are counted in calculating the tax credit for small businesses. For the years prior to 2014, only the premiums paid to a health insurance issuer will be counted. Premiums for health care coverage that offer a wide scope of products such as major medical, dental and vision from one health insurance issuer can be counted. However, if an employer offers medical separately from dental and/or vision then the employer must satisfy the requirements for each type of coverage.
If the employer only pays part of the premium costs while the employee covers the rest, the employer may only count the portion they have paid in calculating the tax credit.
4. What is the average premium for the small group market in a state (or an area within the state)?
The average premium is determined by the Department of Health and Human Services. This department sets the average premium for the small group market in each state for the tax year.
5. What is the maximum credit for a qualified employer (other than a tax-exempt employer)?
For tax years beginning in 2010 through 2013, the maximum tax credit issued will be 35% of the employer's premiums paid.
6. What is the maximum credit for a tax-exempt employer?
For tax years beginning in 2010 through 2013, the maximum tax credit issued will be 25% of the employer's premiums paid.
7. Can premiums paid by the employer in 2010, but before the new health reform legislation was enacted, be counted in calculating the credit?
Yes. All qualified premiums paid by the employer may be counted for 2010.
8. How is the amount of average annual wages determined for purposed of qualifying for the small business tax credit?
The amount of average wages is determined by first dividing the (1) total wages paid by the employer during the employer's tax year to employees taken into account by (2) the number of employer's FTEs for the year.
9. Can an employer with 25 or more employees qualify for the credit if some of its employees are part-time?
Yes they can because the limitation on the number of employees is based on the FTEs. So if some of the employees are part-time the employer could possibly still qualify. For example, an employer with 46 part-time employees (1,040 hours of time) has 23 full time employees and can qualify.
10. If the owner of a business also provides services to it, does the owner count as an employee?
Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than 2% of a S corporation, and any owner of more than 5% of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these owners is not calculating in determining the FTEs or the annual wages as well as the premiums paid on behalf of this person.
