J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Tax Credit for Contributions to Employee Health Coverage

There is a new credit to encourage small employers (no more than the equivalent of 25 full-time employees) to help pay for employee health coverage. The credit is very complicated; it varies with the number of employees, their average full-time wages, the amount of premiums paid, and the average premiums by state for the small group market.

The tax credit is up to 35% of the employer’s contribution to pay for employee health insurance. This credit is limited to small employers; they are defined as having no more than the equivalent of 25 full-time employees (FTEs) with average annual wages of less than $50,000. A full credit is available to those with 10 or fewer FTEs with average wages of less than $25,000.

The amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective contributions paid by an eligible small employer on behalf of employees, or (2) the amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the state (or in an area in the state) in which the employer is offering health insurance coverage. The average premium amounts are fixed by the Department of Health and Human Services. The average premium amounts for 2011 are found in Table 19.1. The amounts for 2012 can be found in the Supplement.

TABLE 19.1 Average Premiums for 2011 ...