NOTE: The Insurance Department is not an employee benefits or tax expert. Employers should review U.S. Internal Revenue Service (IRS), U.S. Department of Labor (DOL) and U.S. Health and Human Services (HHS) guidance on all employer issues related to health care reform.
Small businesses can call 1-800-706-7893 for federal Marketplace assistance.
If you have tax questions, please contact the IRS. Small Business Health Care Tax Credit for Small Employers
If you have labor questions, please contact the U.S. Department of Labor. U.S. Department of Labor's Employee Benefits Security Administration
I own a small business. Will I have to buy insurance for my workers? What help can I get?
It depends on the size of your firm. Companies with fewer than 50 workers won't face any penalties if they don't offer insurance. Companies can get tax credits to help buy insurance if they have 25 or fewer employees and a workforce with an average wage of up to $50,000. Tax credits of up to 35 percent of the cost of premiums became available in 2010 and will reach 50 percent in 2014. The full credits are for the smallest firms with low-wage workers; the subsidies shrink as companies' workforces and average wages rise. Beginning in 2015, firms with more than 50 employees that do not offer coverage will have to pay a fee of up to $2,000 per full-time employee if any of their workers get government-subsidized insurance coverage in the Marketplaces. The first 30 workers will be excluded from the assessment.1
I have 5 employees. Will I be required to provide insurance for my employees?
No. The employer responsibilities under the health reform law do not apply to employers with fewer than 50 employees. However, you will be able to enroll your employees in coverage through the Marketplace beginning in 2014.3
I have 75 employees. Will I be required to provide insurance for my employees?
Yes. An employer that fails to offer minimum essential coverage to its employees will be subject to a penalty of $2,000 for each of their employees beyond the first 30 (effective 2015). In your case, this penalty would be $2,000 x (75-30) = $90,000. If an employee's share of the premium for coverage provided by an employer exceeds 9.5% of his or her household income, employers that do offer minimum essential coverage will be assessed a penalty of $3,000 per employee that receives a subsidy through the Marketplace. This penalty may not exceed $2,000 times the number of employees beyond the first 30.3
I am self-employed. Will the new law impact my health insurance choices?
Yes. Beginning Jan. 1, 2014, self-employed individuals and their families must be included in the small group market in all states and will have the option of purchasing coverage through the Marketplace. 3
How does the small business tax credit work?
The federal health reform law provides a Small Business Tax Credit to businesses for contributing toward their workers' health premiums. The credit applies to all amounts paid or incurred in taxable years beginning after Dec. 31, 2009.
Businesses with fewer than 25 full-time equivalent employees (FTE) and average annual wages less than $50,000 per employee qualify for the credit. To receive the tax credit, an employer must have a group health plan and must pay at least 50 percent of the premium.
The tax credit is not available for coverage for working owners (sole proprietors, partners, 5 percent shareholders, 2 percent shareholders of S corporations) and their immediate families. Coverage for seasonal workers who work 120 or fewer days is not eligible for this tax credit.2
How much is the small business tax credit?
The tax credit is a percentage of what the employer pays and is based on the average premium in the small group market in the state. The U.S. Department of Health and Human Services is required to determine the average premium for each state or region.
For tax years 2010 through 2013, the maximum credit in each year is 35 percent of the employer's contributions (25 percent for nonprofit employers).
For tax year 2014, the maximum credit is 50 percent of the employer's contribution (35 percent for nonprofit employers). A business may receive two years of up to 50 percent tax credits. The two years of 50 percent credit is in addition to any credit the employer might have received for tax years 2010 through 2013.2
Do I qualify for the tax credit?
Step 1. Determine the total number of your employees (not counting owners or family members):
Full-time employees: ________ (number of employees who work at least 40 hr/week)
Full-time equivalent of part-time employees: ________ (divide the total annual hours of part-time employees by 2080)
= _________ total employees
If total employees is fewer than 25, go to step 2
Step 2. Calculate the average annual wages of employees (not counting owners or family members):
Take the total annual wages paid to employees: ____________
Divide it by number of employees from STEP 1: ___________ (total wages ÷ number of employees)
= ____________ average wages
If the result is less than $50,000, AND …
Step 3. You pay at least half of the insurance premiums for your employees at the single (employee-only) coverage rate, then you may be able to claim the Small Business Health Care Tax Credit. Use Form 8941 and Form 3800. Find more information at www.irs.gov.
How do businesses claim the tax credit?
The Small Business Health Insurance Tax Credit is part of the "general business credit," which reduces the income taxes a business owes. If the credit is more than taxes owed, the unused credit can be carried forward or back to other years that a business has a tax liability. Tax-exempt small businesses may apply the credit to their payroll taxes.2
For more information, visit www.irs.gov.
1 Kaiser Health News
2 Maine Bureau of Insurance
3 National Association of Insurance Commissioners