Small Business Health Insurance Credit Explained

Written by Peter Tran

June 22, 2017

When the Patient Protection and Afforbility Act became law this pt March, many small businesses immediately qualified for a substantial, retroactive edit – a edit that will reduce their health insurance cost by up to 35 percent. What had remained unclear, however, w a detailed definition of which employers, employees and policies qualify for the edit.

Fortunately, the IRS recently releed guince to answer these s. Unfortunately, this guince complicates what originally seemed a straightforward proposition. es your business or organization qualify for the Small Employer Health Care edit? Toy, we’ll semble some of the edit’s major components to help you construct an answer.

To qualify for the health care edit, businesses and -exempt organizations must meet three iteria: First, pay at let 50 percent of their employees’ single-rate health care premiums; Second, employ less than 25 “full-time equivalent” employees; and third, pay these FTEs an average of less than $50,000 per year.

Qualifying employers also must utilize a “qualifying arrangement” and pay at let 50 percent of employees’ health insurance premiums when calculated at the single (worker-only) rate. A qualifying arrangement exists if the employer pays a “uniform percentage” (the same percentage for each employee) of at let 50 percent of each employee’s single-rate health care premium. However, for 2010, this rule is relaxed. A “qualifying arrangement” will be considered to exist so long the employer pays at let 50 percent (but not necessarily the same percentage) of premiums for each employee enrolled in employer-offered coverage.

Although total premiums are utilized when detining whether an employer h paid a qualifying percentage of premiums, only premiums actually paid by the employer are used to calculate the edit. For example, if the employer pays 60 percent of an employee’s coverage, only the premium actually paid by the employer (60 percent) is utilized to calculate the edit.
The amount of premium that can be used to calculate the edit also is capped by the average premium paid for “small group” market coverage in the state (or geographic area) where the insurance is offered. This small group premium limit is detined by the Department of Health and Human Services and published via Revenue Ruling 2010-13. When calculating the amount of “qualifying premium,” employers must use the lesser of the single-rate premium actually paid for the employee (calculated at the employee-only rate) or the amount listed on Revenue Ruling 2010-13.

Several additional calculations must be made to detine whether or not the employer is eligible for the edit. First the employer must calculate their number of FTEs. To calculate the number, take the total worked by all employees ( not count over 2,080 for any one employee) and divide that total by 2,080 – then, round the answer up to the next whole number. Employers also must detine the average wage paid to each FTE. The average wage per FTE is calculated by taking the total wages paid during the year, dividing it by the total number of FTEs, then rounding wn to the nearest $1,000. When detining the number of FTEs and average wage, not include the or wages of seonal workers (working less than 121 ys per the year), business owners or the members of business owners. But be careful – there are special rules for detining which owners or members to exclude.

Businesses and nonprofits that employee less than 25 FTEs who earn an annual average of less than $50,000 qualify for the edit. Through 2013, the maximum edit is 35 percent of qualifying premiums for small businesses and 25 percent for nonprofits. The edit, however, is skewed so that only employers who employ 10 FTEs or less who earn an average of $25,000 or less qualify for the maximum edit. The edit is reduced for employers with FTEs or average wages exceeding these amounts. This too requires additional calculations.
Toy we constructed a bare-bone skeleton of the Small Employer Health Insurance edit. We did not flesh out details that may impact your specific business or organization. This edit will prove a valuable tool for many businesses struggling to provide their employees health care coverage. But it is also cumbersome, complex and should not be claimed without some professional guince. For more , plee feel free to contact our office or consult with another qualified professional.

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