Tax Credit for Contributions to Employee Health Coverage
There is a new credit to encourage small employers (no more than the equivalent of 25 full-time employees) to help pay for employee health coverage. The credit is very complicated; it varies with the number of employees, their average full-time wages, the amount of premiums paid, and the average premiums by state for the small group market.
The tax credit is up to 35% of the employer’s contribution to pay for employee health insurance. This credit is limited to small employers; they are defined as having no more than the equivalent of 25 full-time employees (FTEs) with average annual wages of less than $50,000. A full credit is available to those with 10 or fewer FTEs with average wages of less than $25,000.
The amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective contributions paid by an eligible small employer on behalf of employees, or (2) the amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the state (or in an area in the state) in which the employer is offering health insurance coverage. The average premium amounts are fixed by the Department of Health and Human Services. The average premium amounts for 2011 are found in Table 19.1. The amounts for 2012 can be found in the Supplement.
TABLE 19.1 Average Premiums for 2011 by State for the Small Group Market
| State | Employee-Only Coverage | Family Coverage |
| Alabama | $4,778 | $12,084 |
| Alaska | 6,729 | 14,701 |
| Arizona | 4,614 | 11,063 |
| Arkansas | 4,378 | 9,849 |
| California | 4,740 | 11,493 |
| Colorado | 5,007 | 12,258 |
| Connecticut | 5,640 | 14,097 |
| Delaware | 5,902 | 13,411 |
| District of Columbia | 5,721 | 14,024 |
| Florida | 5,218 | 12,550 |
| Georgia | 5,085 | 11,440 |
| Hawaii | 4,622 | 11,529 |
| Idaho | 4,379 | 10,066 |
| Illinois | 5,565 | 13,176 |
| Indiana | 5,262 | 12,097 |
| Iowa | 4,694 | 11,051 |
| Kansas | 4,693 | 11,909 |
| Kentucky | 4,456 | 10,560 |
| Louisiana | 5,143 | 11,911 |
| Maine | 5,261 | 12,255 |
| Maryland | 5,073 | 12,530 |
| Massachusetts | 5,900 | 15,262 |
| Michigan | 5,195 | 12,539 |
| Minnesota | 5,048 | 12,790 |
| Mississippi | 5,433 | 10,501 |
| Missouri | 4,787 | 10,860 |
| Montana | 4,923 | 10,789 |
| Nebraska | 5,130 | 12,057 |
| Nevada | 4,781 | 10,836 |
| New Hampshire | 5,858 | 14,523 |
| New Jersey | 5,868 | 14,093 |
| New Mexico | 5,146 | 12,328 |
| New York | 5,589 | 13,631 |
| North Carolina | 5,136 | 11,949 |
| North Dakota | 4,545 | 11,328 |
| Ohio | 4,706 | 11,627 |
| Oklahoma | 4,922 | 11,200 |
| Oregon | 4,881 | 11,536 |
| Pennsylvania | 5,186 | 12,671 |
| Rhode Island | 5,956 | 14,553 |
| South Carolina | 5,036 | 11,780 |
| South Dakota | 4,733 | 11,589 |
| Tennessee | 4,744 | 11,035 |
| Texas | 5,172 | 12,432 |
| Utah | 4,532 | 11,346 |
| Vermont | 5,426 | 12,505 |
| Virginia | 5,060 | 12,213 |
| Washington | 4,776 | 11,151 |
| West Virginia | 5,356 | 12,724 |
| Wisconsin | 5,284 | 13,911 |
| Wyoming | 5,430 | 12,867 |
This credit applies in 2010, 2011, 2012, and 2013 and can be claimed in each year in which the employer qualifies. For years beginning after 2013, the credit applies only for a maximum of 2 years, and only for small employers that purchase health coverage through a State exchange. Potentially, a small employer could qualify for the credit for up to 6 years: 4 years under the initial credit phase (health coverage from a state-licensed insurance company), and then for 2 years under the second phase (health coverage through a State exchange).
The credit is part of the general business credit. The credit can be used to offset alternative minimum tax liability.