Many small businesses and tax-exempt organizations that provide health insurance for their employees now qualify for a special tax credit. The credit is included in the health care reform legislation, the Patient Protection and Affordable Care Act, it is designed to encourage small businesses to offer health insurance for the first time or maintain coverage that exists.
The credit is available to employers that pay at least half the cost of single coverage for their employees. The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Then in 2014 the maximum credit increases to 50 percent of premiums paid by eligible employers and 35 percent of premiums paid by eligible employers that are tax exempt.
The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is mostly available to employers that have fewer than 25 full time employees paying wages averaging less than $50,000 per employee per year. The maximum credit will go to smaller employers with 10 or fewer full time employees paying annual wages of $25,000 or less.
Eligible businesses can claim the tax credit as part of the general business credit starting with the 2010 income tax return they file in 2011. The IRS plans to provide future information related to tax-exempt employers on how to claim the credit.