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The Small Business Health Care Tax Credit

Estimator

Introduction

The Taxpayer Advocate Service developed the Small Business Health Care Credit Estimator to help you find out whether you're eligible for the Small Business Health Care Credit and how much you might receive.

What is the Credit

The Small Business Health Care Credit is designed to help you provide health insurance coverage to your employees. For tax years 2010 through 2013, the credit can be up to 35% of your share of your employees' health insurance premiums; or, if you're an eligible tax-exempt employer, up to 25% of your share of premiums.

You are an eligible small employer for the tax year if you meet these three requirements.

  1. You paid premiums for employee health insurance coverage under a qualifying arrangement .
  2. You had fewer than 25 full-time equivalent employees (FTEs) for the tax year. You may be able to meet this requirement even if you had 25 or more employees.
  3. You paid average annual wages for the tax year of less than $50,000 per FTE.

For tax years 2014 and later, there are changes to the credit:

  • The credit can be up to 50% of your share of your employees’ health insurance premiums, or, if you’re an eligible tax-exempt employer, up to 35 percent of your share of premiums.
  • You must purchase insurance for your employees through the Small Business Health Options (SHOP) Marketplace.

  • The credit is only available to you for two consecutive years.

For more information about the requirements, see Notice 2010-44, Notice 2010-82, Notice 2014-6, and Regulations for the credit.

Questions and Assistance

If you have tax questions about the Small Business Health Care Tax Credit, or need assistance completing the necessary forms, call the IRS Business Help Line at 1-800-829-4933. IRS assistance is limited to tax law questions and help with forms. The IRS does not provide any technical support or assistance for this tool.

What is the Estimator

This tool is intended to help small businesses and practitioners determine their eligibility for the credit and the possible amount of the credit. Primarily, you may qualify for the credit if you can answer "yes" to these questions:

  1. Do you have eligible employees?
  2. Do you offer health insurance to your employees?
  3. Do you contribute to the cost of health insurance for your employees?

This tool can help you estimate it. However, this estimator does not determine:

  1. Whether the health insurance coverage you offer is an eligible plan,
  2. Which of your employees are considered employees for purposes of the credit.

Claiming the Credit

The estimator will help estimate the credit based on the information you enter. To claim the Small Business Health Care Tax Credit, you must complete and attach the appropriate Form and file it with the IRS.

Why just an estimate?

The credit provided by the estimator is based on the information you entered. We can't guarantee the amount without a complete review of your situation.

Getting Started

To use the estimator, you'll need certain information, including:

  1. Information about your employees (including total hours worked and total wages)
  2. Information about the health insurance costs you pay on behalf of your employees.

You can find a complete list of what you need to claim the credit in the information needed section of the estimator's instructions. You can get more information and IRS resources at Small Business Health Care Tax Credit for Small Employers and from the Affordable Care Act Tax Provisions.

Privacy

To protect your and your employees' privacy, the tool requests only the information needed to estimate your credit. It does not ask for any personal information, such as names or Social Security numbers. This tool uses session cookies to temporarily store the data you enter and they are removed when you close your browser.

If you stop and close your browser before completing all the steps, you will need to start over.

Click on the year to begin:

Resources

From www.irs.gov

Regulations for 2014 and Later

Information on Use of this Tool

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Qualifying Arrangement

For 2011, 2012, and 2013

A qualifying arrangement generally requires you to pay a uniform percentage (not less than 50%) of the premium cost for each enrolled employee's health insurance coverage. An arrangement that offers different tiers of coverage (for example, self-only, self-plus one, and family coverage) is generally a qualifying arrangement if it requires you to pay a uniform percentage (not less than 50%) separately for each tier of coverage you offer.

However, an arrangement can be a qualifying arrangement even if it requires you to pay a uniform percentage that is less than 50% of the premium cost for some employees. It is a qualifying arrangement if you are paying a uniform amount that is at least 50% of the cost of your employees' self-coverage, even if some of your employees are enrolled in more expensive tiers.

There are special rules for tax years beginning in 2010 and for multi-employer health and welfare plans.

Uniformity Requirement

As part of the qualifying arrangement requirements, you must pay the same percentage (or amount) for each of your employees enrolled in coverage.

For 2010

A qualifying arrangement includes any arrangement that requires you to pay at least 50% of the premium cost for single (employee-only) coverage for each employee enrolled in any health insurance coverage you provide to employees, even if these contributions don't represent the same percentage of the premium for all of these employees. If an employee receives more expensive coverage (such as family coverage), it's still a qualifying arrangement if the employer pays at least 50% of the premium for single coverage even if that is less than 50% of the actual premium for the employee.

In addition, certain employers who don't satisfy the above rule (because they contribute less than 50% of the employee-only premium for some enrolled employees) may still qualify for the credit under other rules for qualifying arrangements. This may include, for example, employers who offer more than one type of health insurance coverage or whose insurance provider doesn't charge the same premium for all employees enrolled in single (employee-only) coverage.

Additional Information

For more information and details regarding the requirements for qualifying arrangements and the special rules for multi-employer health and welfare plans, see Notice 2010-44 or Notice 2010-82.


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State Average Premium Limitation

Your credit is reduced if your premiums paid are more than the premiums you would have paid if your employees enrolled in a plan with a premium equal to the average premium for the small group market in the state in which your employee works.

These tables provide the average premium for the small group market in each state: 2010 - I.R.B. 2010-21 and 2011 - Instructions for Form 8941


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Which of My Employees Should Be Included?

In general, all employees who perform services for you during the tax year are taken into account in determining your FTEs, average annual wages, and premiums paid. Rules that apply to certain types of employees are discussed below.

Excluded employees. The following individuals are not considered employees for purposes of this credit. Do not count hours and wages of these employees and premiums paid for them when you estimate your credit.

  • The owner of a sole proprietorship. If an owner of a business also provides services to the business, does the owner count as an employee for purposes of the credit? Generally, no. sole proprietor, a partner in a partnership, a shareholder owning more than 2 percent of an S corporation, and any owner of more than 5 percent of other businesses is not considered an employee for purposes of the credit.
  • A partner in a partnership.
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 2% of an S corporation.
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 5% of the outstanding stock or stock possessing more than 5% of the total combined voting power of all stock of a corporation that is not an S corporation.
  • A person who owns more than 5% of the capital or profits interest in any other business that is not a corporation.
  • Family members Do family members of a business owner who work for the business count as employees for purposes of the credit? Generally, no. A family member of any of the business owners or partners, or a member of such a business owner's or partner's household, is not considered an employee for purposes of the credit. Neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. or a member of the household who is not a family member but qualifies as a dependent on the individual income tax return of a person listed above. Family members include a child (or descendant of a child), a sibling or stepsibling, a parent (or ancestor of a parent), a stepparent, a niece or nephew, an aunt or uncle, or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. A spouse is also considered a family member for this purpose.

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Health Insurance Coverage

For credit purposes, health insurance coverage means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance provider.

A health insurance provider is either an insurance company or another entity licensed under state law to provide health insurance coverage.

Health insurance coverage also includes coverage under the following plans.

  • Limited scope dental or vision plans.
  • Long-term care plans.
  • Nursing home care plans.
  • Home health care plans.
  • Community-based care plans.
  • Any combination of the above.

In addition, health insurance coverage includes the following.

  • Coverage only for a specified disease or illness.
  • Hospital indemnity or other fixed indemnity insurance.
  • Medicare supplemental health insurance.
  • Certain other supplemental coverage.
  • Similar supplemental coverage provided to coverage under a group health plan.

Health insurance coverage does not include the following benefits.

  • Coverage only for accident, or disability income insurance, or any combination thereof.
  • Coverage issued as a supplement to liability insurance.
  • Liability insurance, including general liability insurance and automobile liability insurance.
  • Workers’ compensation or similar insurance.
  • Automobile medical payment insurance.
  • Credit-only insurance.
  • Coverage for on-site medical clinics.
  • Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.

Also, because the coverage must be offered by a health insurance provider as discussed above, health insurance coverage does not include benefits provided by the following.

  • Health reimbursement arrangements (HRAs).
  • Flexible spending arrangements (health FSAs).
  • Coverage under other self-insured plans.
  • Health savings accounts (HSAs).

However, health insurance coverage may include coverage under the following plans.

  • Church welfare benefit plans.
  • Multiemployer health and welfare plans that provide coverage through a health insurance provider. For details, see Notice 2010-82.

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