The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Expenses Counted in Calculating the Health Care Credit.
Employers must make a nonelective contribution on behalf of each employee participating in a qualified health plan. The percentage contributed on behalf of each employee must be uniform for all employees and must not be less than 50% of the cost of the coverage. If the portion paid by the employer is less than 100%, only the portion paid by the employer counts toward the credit. For example, if a monthly premium is $1,000 and the employer pays $700 or 70%, only the $700 counts toward the credit. This is true even if the employee’s portion is treated as paid by the employer through a salary reduction arrangement under §125 of the Internal Revenue Code of 1986.
Furthermore, an additional cap is imposed that limits the portion eligible for the credit to the amount that would have been paid if the employer had been enrolled in a plan that charges the average premium for a small group market plan for the state or area of the state where the employer offers coverage. The average premium and the state or area of the state to which it applies will be determined by the Secretary of Health and Human Services.
The next topic to be covered in this series is the Maximum Credit for Qualified Employers other than Tax-Exempt Employers. Contact Vision Payroll if you have further questions on Expenses Counted in Calculating the Health Care Credit.