Small Businesses May be Eligible for Insurance Credit

August 5, 2014

The IRS has issued final regulations on the tax credit available to certain small business employers that offer health insurance coverage to their employees (TD 9672).

An eligible small employer (ESE) is an employer that has no more than 25 full-time equivalent employees (FTEs) employed during its tax year and whose employees have annual full-time equivalent wages that average no more than $50,800 for 2014.

However, the full credit is available only to an employer that has 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,400 for 2014. Beginning in 2014, the maximum credit increases to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.

To be eligible for the credit, the eligible small employers must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exception to this requirement. The credit is available to eligible employers for two consecutive taxable years.

In addition, credit eligibility depends on the employer’s covering at least 50 percent of the cost of employee-only (not family or dependent) healthcare coverage for each employee. Coverage must be purchased through the SHOP Marketplace, or the ESE must qualify for an exception to this requirement.