Small Business Health Insurance Credits for Each State

By Joel Handelsman, Toolkit Staff Writer

Small businesses that pay premiums for their employees' health care insurance have been provided information regarding the computation of the tax credit that they can claim for their payments. Under the recently enacted Patient Protection and Affordable Care Act, employers with no more than 25 employees, with average annual wages of no more than $50,000, can claim a tax credit for nonelective premium payments on behalf of their employees.

The small business health care (SBHC) credit is intended to encourage small employers either to offer health insurance coverage for the first time, or to maintain coverage they already have for their employees. Generally, the credit is available to qualifying employers that pay at least half the cost of single coverage for their employees.

The amount of the credit is based on a percentage of the lesser of:

• the amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the taxable year, or
• 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.

In order to compute the amount of the credit, the IRS has provided the "average premium for the small group market" for each state for individual and family coverage. At this point, the Department of Health and Human Services has only released amounts for each state. However, the Secretary of HHS may release amounts for particular areas within a state. The good news is that amounts for an area within a state can't be lower than the amount for the state.

In 2014, the SBHC credit will increase to 50 percent of health premiums paid by eligible small businesses. However, starting in 2014, the credit can only be claimed with respect to premiums on health insurance purchased through one of the newly established insurance exchanges, and can only be claimed for two years.

Click on your state on the map below to find out what the average premium for your state is. This will provide the information required to compute the amount that would have been paid if employees were enrolled in a plan that had a premium equal to the average premium in the state.