What
is it?
As a part of the 2010 health care
reform, a federal tax credit is available to small businesses that
provide health insurance to their employees.
The credit is only available to a
given company for two consecutive years, starting with the first
year after 2009 that the business offers health insurance to a
non-owner employee. So if you’re already offering insurance to your
employees, you can only take the credit in 2010 and 2011. Don’t wait
to see if you qualify!
Your
business is eligible for the credit if:
-
you offer health insurance to
employees (owners are not counted as employees). According to
available guidance from the IRS, you only have to provide some
employees (but at least one non-owner) with health insurance to
qualify.
-
you have no more than the
equivalent of 25 full-time employees (more on this below)
-
your average annual compensation
per employee (not including owners) is not more than $50,000
HOW
MUCH?
For 2010 the credit is equal to 35% of
premiums paid. In other words, if your company pays $10,000 for
employee health insurance, you could get as much as $3,500 from the
IRS as a subsidy. The credit phases out as the number of employees
(not counting owners) climbs past 10. The credit is also reduced as
average annual compensation (not counting owners) grows beyond
$25,000. As a company gets close to average compensation of $50,000
or 25 full time equivalent employees, the credit might just be a few
hundred dollars – or less. Furthermore, the premium used to figure
the credit cannot exceed the average premium for the small group
rate. The Department of Health and Human Services will publish this
number for each state every year. For 2010, the average yearly
single rate premium in Massachusetts is $5700. If your Massachusetts
business pays more than $5700 per single employee, you can still
claim a credit, but it will be reduced.
Part-time employees do count toward
the 25 employee limit, even if you don’t provide insurance for them.
But you must round down to the nearest whole number of full time
equivalent employees. For example if you have one employee who works
40 hrs/week and one who works 30 hrs/week your number of employees
for the purposes of the credit is 1, not 1.75 or 2.
To be eligible the employer must pay
at least 50% of the premium for each covered employee. This applies
only to single (not family) coverage. If family coverage is
provided, the employer must pay for at least the equivalent of 50%
of single coverage. The 50% paid by the employer cannot be paid
under a salary reduction agreement to qualify for the credit.
Additionally, at least for years after 2010, the percentage paid
must be uniform and cannot favor some covered employees over others
– for example, you could not pay 50% of one employee’s premium and
75% of another employee’s premium.
SUPPLEMENTAL
COVERAGE
Dental, vision and other supplemental
coverage is included in the credit calculation. Each plan must
qualify separately, so when considering limits, consider each plan
on its own, not combined with any other plan you may offer.
SUBSIDIES
Receiving state subsidies for health
coverage does not disqualify you from receiving the credit, but the
subsidies are considered to be paid on your behalf. They will reduce
the amount that you are considered to have paid for the purposes of
the credit.
The credit for this year will be
claimed on the business’s 2010 tax return, filed in 2011.
The
IRS has a helpful
FAQ page and
eligibility guide about this credit which includes more how to
calculate your potential credit. Of course, you can still send your
questions to us, or let us know if you would like help in
determining your eligibility or your estimated credit.