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The Health Care Tax Credit: Does your Business Qualify?

The Health Care Tax Credit: Does your Business Qualify?


By: Melanie Berkowitz, Esq.

May 24th, 2010

As part of the Affordable Care Act, President Obama’s health care tax credit part promises to pay up to 35% of health insurance premiums for qualifying small businesses.

The Internal Revenue Service is helping companies determine if they are eligible. "The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers,” explains the IRS on its website. The non-partisan Congressional Budget Office estimates that small businesses could save up to $40 billion by 2019; up to 4 million businesses may be eligible for some amount of relief.

The law is not without some controversy; detractors point out that for employers with more than 10 employees, the amount of the tax credit drops dramatically until it phases out altogether at 25 employees.

Here are the basics components of the tax cut:

  • Small businesses with 10 or fewer full-time employees (or the equivalent) and average salaries of $25,000 or less are eligible to have the government cover 35% of their health care premiums in 2010 – 2013. The amount jumps to 50% of premium costs in 2014.
  • Businesses with between 11 and 25 full-time employees (or the equivalent) and average salaries of up to $50,000 are eligible for a smaller credit on a sliding scale that phases out completely for employers with more than 25 workers.
  • To be eligible, an employer must pay at least one-half of its employees’ health insurance premiums at the employee-only rate.
  • An employer that has not paid its employees’ premiums in the past may begin to do so now and become eligible for the credit.
  • Qualifying small businesses that receive state tax credits for health care are still eligible for the federal tax cut.
  • Not-for-profit small businesses are also eligible for the credit in a lesser amount.
  • Sole-proprietors are not eligible.

Employers who wish to determine if they qualify for the credit can review a number of resources from the IRS, including a worksheet and several business examples. Additionally, the White House has published its own guidance on the tax cut and is discussed the topic on the White House Blog.

None of the information provided herein constitutes legal advice on behalf of Monster.