§45R — Title 26 Internal Revenue Code | U.S. Code

Summary

Gives a tax credit to small employers that pay part of their employees’ health insurance premiums. The credit equals 50% (35% for tax-exempt employers) of the smaller of two numbers: the total employer contributions actually paid for employee premiums for qualified plans offered through an Exchange, or the total contributions the employer would have paid if every counted employee bought a plan costing the average small-group premium in the employee’s rating area. The credit is cut back if the employer has more than 10 full-time equivalent workers (reduced by the fraction (FTEs over 10)/15) or if the employer’s average annual wages exceed a set dollar amount (reduced by the fraction of the wage excess divided by that dollar amount). Special rules apply for tax-exempt employers so the credit can be used against certain payroll taxes. An “eligible small employer” has no more than 25 full-time equivalent employees, average annual wages at or below twice $25,000 (with cost-of-living increases after 2013), and a plan that makes a nonelective employer payment of at least 50% of each enrolling employee’s premium. Full-time equivalent employees are total hours worked divided by 2,080 (hours over 2,080 are ignored). Seasonal workers are ignored unless they work more than 120 days in the year. Certain owners and close relatives are not counted as employees. The credit is normally available for a two-consecutive-taxable-year period starting when the employer first offers one or more qualified plans through an Exchange. For tax years 2010–2013 there are temporary changes (lower credit rates of 35% and 25% for tax-exempt employers, no need to be in the two-year window, and other technical adjustments). The Treasury will issue rules needed to apply these limits and stop avoidance.

Title 26, §45R

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of section 38, in the case of an eligible small employer, the small employer health insurance credit determined under this section for any taxable year in the credit period is the amount determined under subsection (b).

(b)Subject to subsection (c), the amount determined under this subsection with respect to any eligible small employer is equal to 50 percent (35 percent in the case of a tax-exempt eligible small employer) of the lesser of—

(1)the aggregate amount of nonelective contributions the employer made on behalf of its employees during the taxable year under the arrangement described in subsection (d)(4) for premiums for qualified health plans offered by the employer to its employees through an Exchange, or

(2)the aggregate amount of nonelective contributions which the employer would have made during the taxable year under the arrangement if each employee taken into account under paragraph (1) had enrolled in a qualified health plan which had a premium equal to the average premium (as determined by the Secretary of Health and Human Services) for the small group market in the rating area in which the employee enrolls for coverage.

(c)The amount of the credit determined under subsection (b) without regard to this subsection shall be reduced (but not below zero) by the sum of the following amounts:

(1)Such amount multiplied by a fraction the numerator of which is the total number of full-time equivalent employees of the employer in excess of 10 and the denominator of which is 15.

(2)Such amount multiplied by a fraction the numerator of which is the average annual wages of the employer in excess of the dollar amount in effect under subsection (d)(3)(B) and the denominator of which is such dollar amount.

(d)For purposes of this section—

(1)The term “eligible small employer” means, with respect to any taxable year, an employer—

(A)which has no more than 25 full-time equivalent employees for the taxable year,

(B)the average annual wages of which do not exceed an amount equal to twice the dollar amount in effect under paragraph (3)(B) for the taxable year, and

(C)which has in effect an arrangement described in paragraph (4).

(2)(A)The term “full-time equivalent employees” means a number of employees equal to the number determined by dividing—

(i)the total number of hours of service for which wages were paid by the employer to employees during the taxable year, by

(ii)2,080.

(B)If an employee works in excess of 2,080 hours of service during any taxable year, such excess shall not be taken into account under subparagraph (A).

(C)The Secretary, in consultation with the Secretary of Labor, shall prescribe such regulations, rules, and guidance as may be necessary to determine the hours of service of an employee, including rules for the application of this paragraph to employees who are not compensated on an hourly basis.

(3)(A)The average annual wages of an eligible small employer for any taxable year is the amount determined by dividing—

(i)the aggregate amount of wages which were paid by the employer to employees during the taxable year, by

(ii)the number of full-time equivalent employees of the employee determined under paragraph (2) for the taxable year.

(B)For purposes of paragraph (1)(B) and subsection (c)(2)—

(i)The dollar amount in effect under this paragraph for taxable years beginning in 2010, 2011, 2012, or 2013 is $25,000.

(ii)In the case of a taxable year beginning in a calendar year after 2013, the dollar amount in effect under this paragraph shall be equal to $25,000, multiplied by the cost-of-living adjustment under section 1(f)(3) for the calendar year, determined by substituting “calendar year 2012” for “calendar year 2016” in subparagraph (A)(ii) thereof.

(4)An arrangement is described in this paragraph if it requires an eligible small employer to make a nonelective contribution on behalf of each employee who enrolls in a qualified health plan offered to employees by the employer through an exchange in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the qualified health plan.

(5)For purposes of this subsection—

(A)The number of hours of service worked by, and wages paid to, a seasonal worker of an employer shall not be taken into account in determining the full-time equivalent employees and average annual wages of the employer unless the worker works for the employer on more than 120 days during the taxable year.

(B)The term “seasonal worker” means a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including workers covered by section 500.20(s)(1) of title 29, Code of Federal Regulations and retail workers employed exclusively during holiday seasons.

(e)For purposes of this section—

(1)(A)The term “employee” shall not include—

(i)an employee within the meaning of section 401(c)(1),

(ii)any 2-percent shareholder (as defined in section 1372(b)) of an eligible small business which is an S corporation,

(iii)any 5-percent owner (as defined in section 416(i)(1)(B)(i)) of an eligible small business, or

(iv)any individual who bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2) to, or is a dependent described in section 152(d)(2)(H) of, an individual described in clause (i), (ii), or (iii).

(B)The term “employee” shall include a leased employee within the meaning of section 414(n).

(2)The term “credit period” means, with respect to any eligible small employer, the 2-consecutive-taxable year period beginning with the 1st taxable year in which the employer (or any predecessor) offers 1 or more qualified health plans to its employees through an Exchange.

(3)The term “nonelective contribution” means an employer contribution other than an employer contribution pursuant to a salary reduction arrangement.

(4)The term “wages” has the meaning given such term by section 3121(a) (determined without regard to any dollar limitation contained in such section).

(5)(A)All employers treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer for purposes of this section.

(B)Rules similar to the rules of subsections (c), (d), and (e) of section 52 shall apply.

(f)(1)In the case of a tax-exempt eligible small employer, there shall be treated as a credit allowable under subpart C (and not allowable under this subpart) the lesser of—

(A)the amount of the credit determined under this section with respect to such employer, or

(B)the amount of the payroll taxes of the employer during the calendar year in which the taxable year begins.

(2)For purposes of this section, the term “tax-exempt eligible small employer” means an eligible small employer which is any organization described in section 501(c) which is exempt from taxation under section 501(a).

(3)For purposes of this subsection—

(A)The term “payroll taxes” means—

(i)amounts required to be withheld from the employees of the tax-exempt eligible small employer under section 3401(a),

(ii)amounts required to be withheld from such employees under section 3101(b), and

(iii)amounts of the taxes imposed on the tax-exempt eligible small employer under section 3111(b).

(B)A rule similar to the rule of section 24(d)(2)(C) shall apply for purposes of subparagraph (A).

(g)In the case of any taxable year beginning in 2010, 2011, 2012, or 2013, the following modifications to this section shall apply in determining the amount of the credit under subsection (a):

(1)The credit shall be determined without regard to whether the taxable year is in a credit period and for purposes of applying this section to taxable years beginning after 2013, no credit period shall be treated as beginning with a taxable year beginning before 2014.

(2)The amount of the credit determined under subsection (b) shall be determined—

(A)by substituting “35 percent (25 percent in the case of a tax-exempt eligible small employer)” for “50 percent (35 percent in the case of a tax-exempt eligible small employer)”,

(B)by reference to an eligible small employer’s nonelective contributions for premiums paid for health insurance coverage (within the meaning of section 9832(b)(1)) of an employee, and

(C)by substituting for the average premium determined under subsection (b)(2) the amount the Secretary of Health and Human Services determines is the average premium for the small group market in the State in which the employer is offering health insurance coverage (or for such area within the State as is specified by the Secretary).

(3)An arrangement shall not fail to meet the requirements of subsection (d)(4) solely because it provides for the offering of insurance outside of an Exchange.

(h)Any term used in this section which is also used in the Public Health Service Act or subtitle A of title I of the Patient Protection and Affordable Care Act shall have the meaning given such term by such Act or subtitle.

(i)The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations to prevent the avoidance of the 2-year limit on the credit period through the use of successor entities and the avoidance of the limitations under subsection (c) through the use of multiple entities.

Notes & Related Subsidiaries

Inflation Adjusted Items for Certain YearsFor inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title.

Editorial Notes

References in Text

The Public Health Service Act, referred to in subsec. (h), is act July 1, 1944, ch. 373, 58 Stat. 682, which is classified generally to chapter 6A (§ 201 et seq.) of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see

Short Title

note set out under section 201 of Title 42 and Tables. The Patient Protection and Affordable Care Act, referred to in subsec. (h), is Pub. L. 111–148, Mar. 23, 2010, 124 Stat. 119. Subtitle A (§§ 1001 to 1004) of title I of the Act enacted sections 300gg–11 to 300gg–19, 300gg–93, and 300gg–94 of Title 42, The Public Health and Welfare, redesignated sections 300gg–4 to 300gg–7 of Title 42 as sections 300gg–25 to 300gg–28, respectively, of Title 42, and section 300gg–13 of Title 42 as section 300gg–9 of Title 42, amended former section 300gg–11 and 300gg–12 and sections 300gg–21 to 300gg–23 of Title 42, and enacted provisions set out as a note under section 300gg–11 of Title 42. For complete classification of this Act to the Code, see

Short Title

note set out under section 18001 of Title 42 and Tables.

Amendments

2017—Subsec. (d)(3)(B)(ii). Pub. L. 115–97 substituted “for ‘calendar year 2016’ in subparagraph (A)(ii)” for “for ‘calendar year 1992’ in subparagraph (B)”. 2010—Subsec. (d)(3)(B). Pub. L. 111–148, § 10105(e)(1), amended subpar. (B) generally, including dollar amount for taxable years beginning in 2010 in addition to dollar amounts for taxable years beginning in 2011, 2012, and 2013, and subsequent years. Subsec. (g). Pub. L. 111–148, § 10105(e)(2), substituted “2010, 2011” for “2011” in heading and in introductory provisions.

Statutory Notes and Related Subsidiaries

Effective Date

of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 11002(e) of Pub. L. 115–97, set out as a note under section 1 of this title.

Effective Date

of 2010 Amendment Pub. L. 111–148, title X, § 10105(e)(5), Mar. 23, 2010, 124 Stat. 907, provided that: “The

Amendments

made by this subsection [amending this section, section 280C of this title, and provisions set out as a note under section 38 of this title] shall take effect as if included in the enactment of section 1421 of this Act.”

Effective Date

Section applicable to amounts paid or incurred in taxable years beginning after Dec. 31, 2009, see section 1421(f)(1) of Pub. L. 111–148, set out as an

Effective Date

of 2010 Amendment note under section 38 of this title.

§45R Employee Health Insurance Expenses of Small Employers

Summary

Title 26, §45R

Notes & Related Subsidiaries

Editorial Notes

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Amendments

Statutory Notes and Related Subsidiaries

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