Tax Credits to help small businesses provide health insurance coverage

The Patient Protection and Affordable Care Act signed by the President on March 23, 2010 included a tax credit designed to encourage small businesses to offer health insurance coverage or to maintain coverage they already have.

In general, an employer must pay at least half the cost of single coverage to their employees. The IRS has published a FAQ, a guide, and a general notice.

This credit will apply to qualified employers (generally with less than 25 full time equivalent employees) and tax exempt organizations. A qualified employer is generally (1) an employer with fewer than 25 full-time equivalent employees for the tax year, (2) an employer were the average annual wages of its employees for the year must be less than $50,000 per full-time equivalent employees, and (3) where the employer pays the premiums under a “qualifying arrangement.”

The IRS.gov website contains helpful guidance on understanding the nuances of the credit.

The maximum credit for a qualified employer (not a tax exempt employer) is 35% of the employer’s premium expenses that count towards the credit.  The maximum credit for tax-exempt employers is 25% of the employer’s premium expenses that count towards the credit.

Hopefully this law will encourage hiring by small business and encourage employers to offer health care coverage to their employees.