Small Business Health Care Tax Credit for Tax Year 2010

Under the Patient Protection and Affordable Care Act, a new tax credit was created for small businesses that offer health care coverage to their employees and pay at least 50% of their cost for single coverage.

To qualify for the "Health Care Tax Credit", an employer must:

• Have LESS than 25 full-time equivalent (FTE) employees for the tax year,

• The average annual wages of your employees for the year must be less than $50,000, AND

• You must contribute at least 50% of the employees’ health insurance premiums based on the single rate.

The credit applies to BOTH employers who offer health insurance coverage to their employees for the first time and to those who maintain coverage they already have. You also can qualify if you cover your workers through a multi-employer health plan.

Credit Amount

Small businesses can claim the credit for tax years 2010 through 2013 and for any two years thereafter. For tax years 2010 to 2013, the maximum credit is 35% of the premiums paid. Beginning in 2014, the maximum tax credit will increase to 50% of the premiums paid by eligible small business employers.

The maximum credit goes to smaller employers; those with 10 or fewer full-time equivalent (FTE) employees paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more full-time equivalents or that pay average wages of $50,000 or more per year.

NOTE: The eligibility rules are NOT based on the total number of employees, but on the number of full-time equivalent (FTE) employees. Therefore, if an employer has part-time employees, the employer may still qualify even if the employer has more than 25 employees.

Click here to return to "What's NEW for Tax Year 2010?"