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May 21, 2010

Healthcare Reform Small Employer Tax Credit

~ written by Char Sutek, Employee Benefits, Willis

Starting this year, a temporary sliding-scale small employer tax credit is available to help offset the cost of employer provided coverage. The tax credits are provided in two phases, and the amount available depends, in part, upon whether the employer is tax exempt. An eligible small employer may have no more than 25 “full-time equivalent” employees with annual average wages of less than $50,000. To qualify, the small employer must pay at least 50% of a benchmark premium toward the cost of health insurance coverage it purchases for its employees. (Pre-tax salary reduction contributions are not counted as part of the employer’s contribution.)

From 2010 through 2013, qualifying small employers will be eligible for a tax credit of up to 35% (25% for tax exempt employers) of the employer’s actual contribution (excluding employee pre-tax salary reduction contributions) toward the employee’s health insurance premium. The smallest businesses – those with 10 or fewer employees who have average annual wages of less than $25,000 – will be eligible for full credit. The tax credits phase out as firm size and wages increase. In 2014, qualifying small employers must participate in an insurance exchange in order to claim the credit, but the maximum credit increases to 50% of employer contributions (a reduced credit is available for tax exempt employers). Qualifying employers may only claim the credit for up to two years after 2013.

Have questions on the healthcare reform law? Email char.sutak@willis.com or call 614/326.4907.