Info needed to calculate your health reform tax credit
May 11, 2010 by Christian SchappelPosted in: Health care, In this week's e-newsletter - benefits, Latest News & Views, Money, Pay and benefits
Health reform made it possible for small employers to receive a tax credit for the health premiums they pay for their workers — and the feds just released key info employers need to calculate their credits.
Employers are eligible to receive the tax credit if they have:
- fewer than 25 full-time employees (or full-time equivalents), and
- an average employee annual salary of less than $50,000.
The Internal Revenue Service (IRS) just released a chart showing the average small group market health insurance premiums in each state. It can be downloaded here.
Why is it important?
For taxable years before 2014 the maximum tax credit an eligible employer can receive is 35% (25% for tax-exempt employers) of the lesser of:
- the amount of non-elective contributions paid by the employer toward workers’ health insurance premiums, and
- the amount of non-elective contributions the employer would have paid if an employee was enrolled in a plan that had a premium equal to the average premium for the small group market in the state in which the employer is offering health insurance coverage.
The IRS chart is to be used for the last part of that calculation.
In addition, because there are areas in some states that have significantly higher premium rates, the IRS says those areas may be added to the chart — but that won’t cause any of the current figures to be lowered.
Note: 2010 tax credits can be calculated based on non-elective contributions for the entire year. That means contributions before the health reform law was enacted count toward employers’ credits.
Tags: health insurance, health reform, IRS, premiums, small group market, tax credit
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May 20th, 2010 at 8:59 am
The condition that reads “fewer than 25 employees”, is not entirely correct. The IRS has stated it is 25 FT employees, or FT equivalents (1 parttime + 1 parttime = 1 FT). If an employer had more than 25 total employees, then they may stop reading this and not try to get the credit they are deserved if they actually have less than 25 FT equivalents.
May 20th, 2010 at 9:39 am
Elaina,
Thank you for pointing out our omission. You are correct. We’ve made the necessary changes.
May 20th, 2010 at 10:19 am
OK I have a small business. Our employees are all family members. We all work 25 hours a week at the business. Can we get a credit???
Thank you
Dan SNyder
Dan@snydersmanagement.com
May 20th, 2010 at 10:53 am
I think not. I have attached the URL for the IRS’ “Small Business Health Care Tax Credit: FAQs” Please see #14.
http://www.irs.gov/newsroom/article/0,,id=220839,00.html
(you may need to copy/paste this URL)