§45R Employee Health Insurance Expenses of Small Employers

Summary

Gives a tax credit to small employers that pay part of their workers’ health insurance. The credit equals 50% of the employer’s required (nonelective) contributions for premiums, or 35% if the employer is a tax‑exempt nonprofit. The credit is based on the smaller of (a) what the employer actually paid for employees’ Exchange plan premiums, or (b) what the employer would have paid if each counted employee had a plan with the average small‑group premium for the area. For calendar years 2010–2013 the credit rates were 35% (25% for tax‑exempt employers) and some other small technical changes applied. Only businesses that meet size and wage rules can get the credit. An “eligible small employer” has no more than 25 full‑time equivalent (FTE) employees and average annual wages at or below twice a statutory dollar amount. FTEs are total paid hours divided by 2,080 (rounded down). Hours over 2,080 for any employee do not count. Seasonal workers who work 120 days or less are ignored. The statutory dollar amount is $25,000 for tax years starting in 2010–2013 and is adjusted for inflation after 2013. Employers must use a plan that requires them to make a uniform contribution for each enrolled employee equal to at least 50% of the premium. The credit is reduced if the employer has more than 10 FTEs or if average wages exceed the dollar amount. The reduction equals the full credit times two fractions added together: (1) (FTEs over 10) divided by 15, and (2) (average wages over the dollar amount) divided by that dollar amount. The credit is normally allowed for only two consecutive tax years starting when the employer first offers plans through an Exchange. For tax‑exempt employers the credit is given against certain payroll taxes and cannot exceed those payroll taxes for the calendar year. Related employers are treated as one employer for these rules, and the government can make regulations to prevent abuse.