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Small Employer Health Care Tax Credit

The Small Employer Health Care Tax Credit, a provision of the Affordable Care Act, was created to encourage small employers to continue to offer healthcare coverage to their employees. The credit was implemented for the 2010 tax year, and is due to continue through the 2016 tax year. Beginning with the 2014 tax year, eligibility and certain other criteria and features of the program were changed.

2010 thru 2013

Through the 2013 tax year, the credit was available to eligible employers who participated in self-funded church plans, including:

  • Medical Trust medical and dental plans,
  • Long-term care plans,
  • Nursing home care plans,
  • Home health care plans,
  • Community-based care plans,
  • Fixed indemnity insurance,
  • Medicare supplemental health coverage, and
  • Certain other coverages.

It provided a refundable credit of up to 25% of the employer contributions toward health insurance, limited to the amount of certain payroll taxes paid and the average premium in the small group market in the state. Eligible employers are defined as those:

  • With fewer than 25 full-time equivalent (FTE) employees
  • Whose average employee salary is less than $50,000 (excluding clergy wages)
  • Who pay premiums equal to a uniform percentage (but not less than 50% for single coverage) for each employee enrolled in benefits

Employers were generally required to claim the credit by the 15th day of the fifth month after the close of the tax year (e.g., for those using a calendar year, the deadline for 2013 was May 15, 2014). However, we understand that tax-exempt employers who did not file for the credit for the tax years of 2010 to 2013 may file an amended return to claim it. For more information, including detailed instructions on how to claim the tax credit should you opt to file an amended return, see 2013 Small Employer Health Care Tax Credit.

2014 thru 2016

Effective with the 2014 tax year, eligibility for the Small Employer Health Care Tax Credit was limited to employers who offer coverage to their FTEs through the Small Business Health Options Program (SHOP) Marketplace. This means that employers participating in Medical Trust plans are no longer eligible to claim the credit.

What’s new for employers eligible to use the SHOP Marketplace:

  • Beginning with the tax year 2014 and ending after the 2016 tax year, the amount of the tax credit was increased to up to 35% of health care costs for eligible tax-exempt employers.
  • Employers with fewer than 10 FTEs and whose average employee salary is $25,400 (for 2014) or less are eligible for the full amount of the credit. The amount of the credit is reduced for employers with 10 to 24 FTEs, and/or whose average employee salary is between $25,400 and $50,800 (in 2014).
  • The credit will be available to eligible employers for two consecutive tax years.

To qualify for the SHOP Marketplace, employers must meet additional criteria along with those listed above. See Who Can Use the Shop Marketplace  for more details. Additional information about the tax credit is available on the IRS website's Small Business Health Care Tax Credit page.

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