The Patient Protection and Affordable Care Act (PPACA) brings about several changes effective January 1, 2014. However, employers with fewer than 25 employees will still not be required to offer health insurance and will continue to be eligible for the Health Insurance Tax Credit for Small Employers if they do.
But three significant changes will become effective. First, most individuals will be required to have health insurance coverage in order to avoid a monetary penalty. Second, the maximum small employer health insurance credit will increase from 35% to 50% of the amount of the premium paid by the employer. Third, subsidies (insurance premium tax credits) will become available to U.S. citizens and legal immigrants with income up to 400% of the federal poverty level who purchase coverage in the new health insurance exchanges. The amount of the subsidy will vary based on income levels. We can help you determine the employee premium subsidies available in your situation.
For more information about the health insurance exchange in your state, visit our state specific pages.
Health Insurance Tax Credit for Small Employers
Small employers (less than 25 employees) who contribute to their employee’s health
insurance policy are entitled to a tax credit on that expense. So, in addition to
being a non-taxable form of compensation (see Non-Taxable Compensation below), health
insurance contributions made by an employer have the added benefit of savings from
Note: The average annual employee compensation for the
employer cannot exceed $50,000.
The tax credit percentage is determined by the average annual salary of the employees.
At $25,000, the tax credit is 35% of the contribution. For example, if the Johnsons
pay their nanny $25,000 and contribute $350 per month to her health insurance
policy, their tax credit would be $1,470 ($350 x 12 = $4,200 x .35 = $1,470).
Additional Notes: As the average annual salary increases
above $25,000, the tax credit percentage gradually decreases. In addition to the
sliding tax credit percentage, each state has created a ceiling for the contribution
portion of the formula based on that state’s average premium cost.
If you’d like an estimate of your tax credit – based on your state ceiling and your
tax credit percentage – just give us a call.