IRS Small Business Healthcare Tax Credit

The new Internal Revenue Service (IRS) Small Business Health Care Tax Credit helps small businesses
and small tax-exempt organizations afford the cost of covering their employees’ health care benefits.
Eligibility Rules
For-profit or tax-exempt employer groups may qualify; however, all three of the following criteria must be
met for any group to be considered eligible:
  1. The employer must cover at least 50 percent of health care coverage costs for workers based on the employee-only (single) rate.
  2. The employer must have no more than the equivalent of 25 full-time workers (not counting owners or family members).
  3. Employees’ average annual wages (not counting owners or family members) must be below $50,000.
Credit Amount
  • The maximum credit is worth up to 35 percent of a company’s premium costs in 2010 (25 percent for tax-exempt employers).
  • Note that the rate will increase to 50 percent on January 1, 2014 (35 percent for taxexempt employers).
  • The credit gradually phases out for employers with average wages between $25,000 and $50,000, and for employers with the equivalent of between 10 and 25 full-time workers.
The IRS is informing potentially eligible small business groups about this tax credit.