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Reform - Tax Credit


Small Business Health Care Tax Credit

Certain small businesses and tax-exempt organizations that provide health insurance coverage to their employees may qualify for a special tax credit, according to the Internal Revenue Service.  Included in the recently enacted health care reform legislation, the Patient Protection and Affordable Care Act, is a tax credit designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.  The following are eligibility rules and the amount of credit as explained by the IRS.

Eligibility Rules

  • Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage. A qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

  • Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010 through 2013. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
  • Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers. 

Three Simple Steps for Employers to Qualify

If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, determine if you may qualify for the Small Business Health Care Tax Credit by following the three simple steps featured here.

For more information about the credit, please see different tax credit scenarios and answers to frequently asked questions. Or, please visit the IRS site here.