An Internal Revenue Service (IRS) news release said the credit, included in the the Patient Protection and Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
The tax agency said that in general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.
“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said IRS Commissioner Doug Shulman, in the news release. “We urge small businesses and tax-exempt employers to look closely at this important tax break – which is already effective – to see if they qualify.”
The maximum credit is 35% of premiums paid in 2010 by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible employers that are tax-exempt organizations.
The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers, according to the IRS. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year..
The maximum credit goes to smaller employers – those with 10 or fewer FTEs – paying annual average wages of $25,000 or less.
According to the IRS, eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.
More information is available from the IRS Web site, www.irs.gov.