New ACA Small Business Tax Credit Regulations Released

Bernadette Hunton
Bernadette Hunton

Under the Affordable Care Act, eligible small-business employers can now receive a tax credit for offering health coverage to their employees. Final rules and regulations regarding the tax credit were released, and become effective, today.

Who is Eligible

To qualify for the tax credit an employer must:

  • Have no more than 25 full-time equivalent (FTE) employees
  • Have maximum annual average wages of $ 50,000
  • Pay at least 50% of employee health insurance premiums

Federal, state and local government entities are not eligible for the tax credit.

Determining FTE Employees

Part-time and leased employees are counted in determining the number of FTE employees and annual average wages. Seasonal workers who work 120 days or fewer during the taxable year, the small- business owner, and family members of the small- business owner, generally, are not.

FTEs are calculated by computing the total hours of service for the taxable year, using one of three allowable methods, and dividing by 2,080. This means that it is possible for an employer who has more than 25 employees to qualify for the tax credit.

More information regarding determining the number of FTE employees can be found here.

Calculating the Credit

An eligible employer offering a plan through a Small Business Health Options Program (SHOP) exchange can receive a maximum credit of 50% of the employer’s premium payments made on behalf of its employees. Information regarding Maryland’s SHOP exchange can be found here.

Tax-exempt eligible employers can receive a maximum credit of 35%.

The credit phases out as an eligible employer’s number of full-time employees exceeds 10, or if the average annual wages exceed $ 25,000.

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