Small Employer Health Insurance Credit
The Affordable Care Act provides a tax credit to encourage eligible small employers to provide health insurance coverage to their employees. Starting in 2014, a taxpayer may claim the Code Sec. 45R credit for two-consecutive tax years, beginning with the first tax year in or after 2014 in which the eligible small employer attaches Form 8941, Credit for Small Employer Health Insurance Premiums, to its income tax return, or in the case of a tax-exempt eligible small employer, attaches Form 8941 to Form 990-T, Exempt Organization Business Income Tax Return. A taxpayer may claim the credit for tax years beginning in 2010 through 2013 without those years counting toward the two-consecutive tax year period.
An eligible small employer for purposes of the Code Sec. 45R credit is an employer that has no more than 25 FTEs for the tax year, whose employees have average annual wages of less than $50,000 per FTE (adjusted for inflation after December 31, 2013), and that has a qualifying arrangement in effect that requires the employer to pay a uniform percentage (not less than 50 percent) of the premium cost of a qualified health plan offered by the employer to its employees through a SHOP Marketplace.
For tax years beginning during or after 2014, the maximum Code Sec. 45R credit for an eligible small employer (other than a tax-exempt employer) is 50 percent of the employer’s premium payments. The maximum credit for tax-exempt employers for those years is 35 percent. For 2010-2013, the maximum credit has been 35 percent for taxable employers and 25 percent for tax-exempt employers.
There is a buzz that this FTE threshold is going to be raised to 50 FTEs. This will be an area to watch closely in the coming months.