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Tax Credit Helps Small Employers
Provide Health Insurance Coverage
WASHINGTON ― Many
small businesses and tax-exempt organizations that provide health
insurance coverage to their employees now qualify for a special tax
credit, according to the Internal Revenue Service.
Included in the health care reform legislation, the Patient Protection
and Affordable Care Act, approved by Congress and signed by President
Obama on March 23, the credit is designed to encourage small employers
to offer health insurance coverage for the first time or maintain
coverage they already have. In general, the credit is available to small
employers that pay at least half the cost of single coverage for their
“This credit provides a real boost to eligible small businesses by
helping them afford health coverage for their employees,” said IRS
Commissioner Doug Shulman. “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.”
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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. In 2014, this maximum
credit increases to 50 percent of premiums paid by eligible small
business employers and 35 percent 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. 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. Because the eligibility formula is based
in part on the number of FTEs, not the number of employees, many
businesses will qualify even if they employ more than 25 individual
The maximum credit goes to smaller employers – those with 10 or fewer
FTEs – paying annual average wages of $25,000 or less.
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. For tax-exempt employers, the IRS will provide further information
on how to claim the credit.
The IRS will use postcards to reach out to millions of small businesses
that may qualify for the credit. The postcards will encourage small
business owners to take advantage of the credit if they qualify.
More information about the credit, including tax tips, guides and
answers to frequently asked questions, is now available on the IRS Web
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