Guidance on Small-Employer Health Care Credit
The IRS has released guidance on computing the health insurance tax credit for eligible small employers that make nonelective contributions toward their employee’s health insurance premiums.
The Patient Protection and Affordable Care Act added a provision that allows eligible small employers a tax credit for nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of participating employees. The amount of the credit is equal to 35 percent of the lesser of:
An employer determines its status as an eligible small employer each tax year. An employer is an eligible small employer if the following conditions are met:
Certain employees are excluded from the determination of FTEs. Excluded employees are sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses. Family members of these owners and partners are also not taken into account as employees.
The IRS guidance clarifies, among other things, how employers calculate the credit, the types of coverage that are eligible for the credit, and the interaction of the federal tax credit with state tax credits. In addition, the IRS provides the average premium for the small group market in each state for the 2010 tax year for purposes of computing the amount of the credit.
The health insurance tax credit for small employers is one of many provisions of the Patient Protection and Affordable Care Act that encourages the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding your eligibility or the calculation of the credit, please call our office at your earliest convenience.
Arthur Lee Moye III
Certified Public Accountant
MBS Accountancy Corporation