Health Care Reform Provides Tax Credit for Small Employers


A much-welcomed provision aimed at small employers was included in the health care reform law. The new tax credit under Code Section 45R is equal to up to 35% of the premiums paid by small employers on behalf of their employees, and up to 25% of the premiums paid by tax-exempt and nonprofit small employers. The credit will be available through 2013, at which time it is expected that state health insurance exchanges will be available and small employers would transition their employees into an exchange. (In 2014 when the insurance exchanges go online, the tax credit increases to 50% (30% for tax-exempt and nonprofit small employers) for health insurance purchased through an exchange.)

The credit is greatest for small employers—those with 10 or fewer full-time employees— paying annual average wages of $25,000 or less. It is phased out completely for employers with more than 25 full-time employees or with average wages of more than $50,000.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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