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.