Qualifying Arrangement for the Small Employer Health Insurance Credit

Qualifying Arrangement for the Small Employer Health Insurance Credit

Since 2010, the Affordable Care Act (ACA) has allowed a credit for small employers to offset the cost of offering health insurance to its employees under §45R. This credit is allowed regardless if the taxpayer is for-profit or tax-exempt. In order to qualify, the employer must purchase health insurance coverage under a qualifying arrangement. This arrangement must be one where the employer pays the premium and must:

  1. Be based on non-elective contributions.
  2. Meet the uniform percentage requirement.

The non-elective contribution simply means the employer cannot base the credit on the amount the employee pays. Second, the employer generally must pay at least half of the actual premiums for the employee’s coverage to meet the uniform percentage requirement. For most small employers this is simple to calculate when there is only one plan and tier, an arrangement that allows the employee to select self, self plus one, and family. However, complications arise when there is more than one tier and the employer pays less than 50% because under certain circumstances, the employer can still qualify. Although employers may not be required to offer insurance under the employer mandate, they can attract new talent by offering health insurance and at the same time, getting a credit in doing so.

Featured in TAXPRO Weekly - September 5, 2013​

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