Section 45R allows a credit for small employers. Effectively, businesses that
purchase health insurance and have fewer than 25 full-time equivalents (FTE) and
pay less than $50,000 on average for wages qualify for the credit. It is
important to know that an FTE is calculated slightly different for the Health
Insurance Credit than it is for the purposes of determining if the taxpayer is
an applicable large employer. The two notable differences that affect the
- The hours are determined on an annual basis, not monthly.
- The denominator is based on 40 hours per week, not 30.
For many small employers that don't have seasonal or leased employees, the
calculation is the total number of hours all employees worked divided by 2,080.
In determining the numerator, keep in mind that:
- The owner and his or her family’s time are not considered.
- The maximum amount of hours that can be included per employee is 2,080 (you
cannot have 1.25 FTE for one employee who worked 2,600 hours).
Although there are many rules related to this credit, the calculation is less
cumbersome than calculating FTE for the penalty. If you calculated FTE for the
penalty purposes, do not simply take that number and use it in determining the