Tax credits are available to small businesses in two phases. To be eligible for both phases of the tax credits, employers must have 25 or less full-time equivalent employees with average wages of $50,000 or less and provide at least 50 percent of the total premium costs. In the first phase of the tax credit – tax years 2010-2013 – employers meeting the criteria can receive a tax credit worth up to 35 percent of the employer’s contribution toward the employee’s health insurance.
The second phase begins in 2014 when the Exchange is created. The credits are available for two years once the employer purchases a group policy through the exchange (note: phase II credits are available strictly through the Exchange).
Employers meeting the criteria can receive a tax credit worth up to 50 percent of the employer’s contribution toward the employee’s health insurance during this time. The full tax credit for both phases is available only to employers with 10 or less employees who have average salaries of $25,000 or less. The credit phases out for businesses between 10-25 full-time equivalent employees with average wages between $25,000 -- $50,000. Tax exempt employers meeting the aforementioned criteria get a 25 percent credit for tax years 2010-2013 and a 35 percent credit for the two years in the Exchange.
For-profit employers can capture the tax credits by deducting it against their federal income tax liability. The credit is not refundable, but it can be carried back one year and forward 20 years. Tax-exempt employers can deduct it against their payroll taxes.
The self-employed are not eligible because the credit is only available to those businesses with employees. The only health insurance premium self-employed individuals will qualify for are federal premium subsidies, assuming they meet the low-income criteria through the Exchange.
