For tax years beginning in 2014 and after, the maximum credit is 50 percent of premiums paid for small business employers, and 35 percent of premiums paid for tax-exempt small employers, such as charities.
Beginning in 2014, a small employer may qualify for the credit if:
- It has fewer than 25 employees who work full-time, or a combination of full-time and part-time. For example, two half-time employees equal one full-time employee for purposes of the credit.
- It pays premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace or qualifies for an exception to this requirement.
- The average annual wages of full-time equivalent employees are less than $51,000. The annual average wages will be adjusted annually for inflation.
- It pays a uniform percentage for all employees that is equal to at least 50 percent of the premium cost of the insurance coverage.
The credit is available to eligible employers for two consecutive taxable years.
A small business employer who did not owe tax during the year can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is greater than the total credit claimed, eligible small employers can still claim a business expense deduction for premiums in excess of the credit.
For tax-exempt small employers, the credit is refundable. Even if the tax-exempt small employer has no taxable income, it may be eligible to receive the credit as a refund so long as it does not exceed its income tax withholding and Medicare tax liability.