Small Employer Health Insurance Premium Credit

Published on 11/06/2013 23:08


The IRS issued proposed regulations governing IRC 45R credit for small employers that offer health insurance coverage for employees.


For years beginning before 2014, an employer is eligible for the small employer health insurance credit only if:

(1) it has 25 or fewer full-time equivalent employees (FTEs);

(2) its average annual wages do not exceed $50,000, adjusted for inflation after calendar year 2013, per FTE; and

(3) it paid premiums for employee health insurance coverage under a qualifying arrangement (Code Sec. 45R(d)(1); Prop. Reg. Sec. 1.45R-2(a)).

An employer does not fail to be an eligible small employer merely because its employees are not performing services in a trade or business of the employer (Prop. Reg. Sec. 1.45R-2(a)).

To claim the credit for tax years beginning in or after 2014, the qualifying arrangement is an arrangement that requires an employer to make a nonelective contribution on behalf of each employee who enrolls in a qualified health plan (QHP) offered to employees through a small business health options program (SHOP) Exchange in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost.

The following steps should be taken to determine whether an employer is eligible for the credit:

(1) determine the employees who are taken into account for purposes of the credit;

(2) determine the number of hours of service performed by those employees;

(3) compute the number of FTEs;

(4) determine the average annual wages paid per FTE; and

(5) determine the premiums paid by the employer that are taken into account for purposes of the credit (Notice 2010-44; Notice 2010-82).


The foregoing is a summary of the rules regarding the small employer health insurance premium credit. Contact our office to discuss the specifics to your small business.

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