Exec Summary - Tax Credit

Small Business Tax Credit


Who:   A small employer with a fully insured health plan who has:

1.      Fewer than 25 full-time equivalent employees for the taxable year,

2.      Average annual wages that do not exceed $50,000 in 2011, 2012, or 2013

      (2014+ adjusted by a cost-of-living index).

3.      Employer Contributions equal to a uniform percentage (not less than 50 percent) of       the premium cost.

 When:   The Credit is effective for premiums paid on or after January 1, 2010 for tax years beginning in 2010
Executive Summary:  The Small Business Tax Credit is available for fully insured health plans only. The Credit is phased out rather quickly if the employer has more than 10 full time employees or the average annual wages exceed $25,000.  Many employers may find the credit reduced to zero even if they have fewer than 25 employees and average annual wages of less than $50,000. 


The maximum Credit for a qualified employer for tax years beginning in 2010 through 2013 is 35% of the employer’s premium expenses (25% of a tax-exempt employer).   The maximum Credit is increased to 50% beginning in 2014 (35% for tax-exempt employers).  Beginning in 2014, the Credit will only be available for plans in an Exchange and then only for two consecutive years.


Employees included in the tax credit calculation are those who perform services for the employer during the taxable year. The following groups of people are excluded as employees:


  • Certain owners, such as sole proprietors, partners in a partnership, shareholders owning more than 2% of an S corporation, and owners of more than 5%;
  • Specified family members and dependents of owners and partners; and Seasonal workers, unless they work for the employer on more than 120 days during the taxable year.


An employer claims the credit on the employer’s annual income tax return (Form 8941).  A tax-exempt employer claims the refundable credit by filing a Form 990-T with an attached Form 8941.


Action Required:  Most employers will want to discuss the potential for a Credit with their insurer, agent, broker, tax accountant, or benefit consultant.  A Credit calculation tool is available from the National Federation Independent Businesses (NFIB) at: 

The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Visions This information is general information only, and does not, and is not intended to constitute legal advice. You should consult your legal advisors to determine the laws and regulations impacting your business.