U.S Code last checked for updates: Jun 16, 2024
§ 45R.
Employee health insurance expenses of small employers
(a)
General rule
(b)
Health insurance credit amount
Subject to subsection (c), the amount determined under this subsection with respect to any eligible small employer is equal to 50 percent (35 percent in the case of a tax-exempt eligible small employer) of the lesser of—
(1)
the aggregate amount of nonelective contributions the employer made on behalf of its employees during the taxable year under the arrangement described in subsection (d)(4) for premiums for qualified health plans offered by the employer to its employees through an Exchange, or
(2)
the aggregate amount of nonelective contributions which the employer would have made during the taxable year under the arrangement if each employee taken into account under paragraph (1) had enrolled in a qualified health plan which had a premium equal to the average premium (as determined by the Secretary of Health and Human Services) for the small group market in the rating area in which the employee enrolls for coverage.
(c)
Phaseout of credit amount based on number of employees and average wages
The amount of the credit determined under subsection (b) without regard to this subsection shall be reduced (but not below zero) by the sum of the following amounts:
(1)
Such amount multiplied by a fraction the numerator of which is the total number of full-time equivalent employees of the employer in excess of 10 and the denominator of which is 15.
(2)
Such amount multiplied by a fraction the numerator of which is the average annual wages of the employer in excess of the dollar amount in effect under subsection (d)(3)(B) and the denominator of which is such dollar amount.
(d)
Eligible small employer
For purposes of this section—
(1)
In general
The term “eligible small employer” means, with respect to any taxable year, an employer—
(A)
which has no more than 25 full-time equivalent employees for the taxable year,
(B)
the average annual wages of which do not exceed an amount equal to twice the dollar amount in effect under paragraph (3)(B) for the taxable year, and
(C)
which has in effect an arrangement described in paragraph (4).
(2)
Full-time equivalent employees
(A)
In general
The term “full-time equivalent employees” means a number of employees equal to the number determined by dividing—
(i)
the total number of hours of service for which wages were paid by the employer to employees during the taxable year, by
(ii)
2,080.
Such number shall be rounded to the next lowest whole number if not otherwise a whole number.
(B)
Excess hours not counted
(C)
Hours of service
(3)
Average annual wages
(A)
In general
The average annual wages of an eligible small employer for any taxable year is the amount determined by dividing—
(i)
the aggregate amount of wages which were paid by the employer to employees during the taxable year, by
(ii)
the number of full-time equivalent employees of the employee determined under paragraph (2) for the taxable year.
Such amount shall be rounded to the next lowest multiple of $1,000 if not otherwise such a multiple.
(B)
Dollar amount
For purposes of paragraph (1)(B) and subsection (c)(2)—
(i)
2010, 2011, 2012, and 2013
(ii)
Subsequent years
(4)
Contribution arrangement
(5)
Seasonal worker hours and wages not counted
For purposes of this subsection—
(A)
In general
(B)
Definition of seasonal worker
(e)
Other rules and definitions
For purposes of this section—
(1)
Employee
(A)
Certain employees excluded
The term “employee” shall not include—
(i)
an employee within the meaning of section 401(c)(1),
(ii)
any 2-percent shareholder (as defined in section 1372(b)) of an eligible small business which is an S corporation,
(iii)
any 5-percent owner (as defined in section 416(i)(1)(B)(i)) of an eligible small business, or
(iv)
any individual who bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2) to, or is a dependent described in section 152(d)(2)(H) of, an individual described in clause (i), (ii), or (iii).
(B)
Leased employees
(2)
Credit period
(3)
Nonelective contribution
(4)
Wages
(5)
Aggregation and other rules made applicable
(A)
Aggregation rules
(B)
Other rules
(f)
Credit made available to tax-exempt eligible small employers
(1)
In general
In the case of a tax-exempt eligible small employer, there shall be treated as a credit allowable under subpart C (and not allowable under this subpart) the lesser of—
(A)
the amount of the credit determined under this section with respect to such employer, or
(B)
the amount of the payroll taxes of the employer during the calendar year in which the taxable year begins.
(2)
Tax-exempt eligible small employer
(3)
Payroll taxes
For purposes of this subsection—
(A)
In general
The term “payroll taxes” means—
(i)
amounts required to be withheld from the employees of the tax-exempt eligible small employer under section 3401(a),
(ii)
amounts required to be withheld from such employees under section 3101(b), and
(iii)
amounts of the taxes imposed on the tax-exempt eligible small employer under section 3111(b).
(B)
Special rule
(g)
Application of section for calendar years 2010, 2011, 2012, and 2013
In the case of any taxable year beginning in 2010, 2011, 2012, or 2013, the following modifications to this section shall apply in determining the amount of the credit under subsection (a):
(1)
No credit period required
(2)
Amount of credit
The amount of the credit determined under subsection (b) shall be determined—
(A)
by substituting “35 percent (25 percent in the case of a tax-exempt eligible small employer)” for “50 percent (35 percent in the case of a tax-exempt eligible small employer)”,
(B)
by reference to an eligible small employer’s nonelective contributions for premiums paid for health insurance coverage (within the meaning of section 9832(b)(1)) of an employee, and
(C)
by substituting for the average premium determined under subsection (b)(2) the amount the Secretary of Health and Human Services determines is the average premium for the small group market in the State in which the employer is offering health insurance coverage (or for such area within the State as is specified by the Secretary).
(3)
Contribution arrangement
(h)
Insurance definitions
(i)
Regulations
(Added and amended Pub. L. 111–148, title I, § 1421(a), title X, § 10105(e)(1), (2), Mar. 23, 2010, 124 Stat. 237, 906; Pub. L. 115–97, title I, § 11002(d)(1)(H), Dec. 22, 2017, 131 Stat. 2060.)
cite as: 26 USC 45R