Small Employer Credit: How it Works and FAQs
Tax-exempt organizations are now eligible to claim the small-employer tax credit for providing health insurance coverage for their employees. The IRS has provided updated information and tips on its website regarding the eligibility requirements and has published rates to guide credit calculation. The IRS has also announced that qualifying tax-exempt organizations will calculate the credit using an updated Form 8941 and claim the credit on a revised Form 990-T.
How It Works
From 2010 - 2013, all eligible small employers that contribute at least 50 percent of the total premium cost for their employees' health insurance (or 50 percent of a benchmark premium) would receive a tax credit. Eligible nonprofit employers would receive a credit of up to 25 percent of the employer contribution which they would apply to taxes they pay or withhold for their employees; employees would still receive full credit for taxes withheld from their pay. Eligible for-profit employers would receive an income tax credit for up to 35 percent of the employer contribution for employees' health care coverage.
In 2014 and beyond, all eligible nonprofit employers that purchase coverage for their employees through a state insurance exchange would receive a credit of up to 35 percent of the employer contribution for employees' coverage which would be applicable against payroll taxes they withhold or pay for their employees. Eligible for-profit employers that purchase coverage for employees through a state insurance exchange would receive an income tax credit for up to 50 percent of the employer contribution for employees' health care coverage applicable towards income taxes they owe.
The Small Business Majority website has a tax credit calculator that will help you determine your organization's eligibility for the small employer health care tax credit. The calculator includes a function to calculate the credit based on nonprofit employer status. Calculate your small-employer tax creditGuidance
Frequently Asked Questions
Does my organization qualify for the tax credit?
What is the maximum credit that a qualifying organization may take immediately?
How are my employees counted for eligibility requirements?
How are average wages determined?
How do we claim the credit?
How long is my organization eligible?