Vision Payroll

In Rev. Rul. 2010-13, Average Premium for Small Group Market for Determining the Small Employer Health Insurance Credit, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) released the chart containing the small group market in each state for the 2010 taxable year. Under the health care reform, employers are allowed a credit in certain situations if they pay a portion of their employees’ health insurance premiums. The credit is limited to the lesser of:

1. The amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the taxable year, and
2. 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.

The State of Idaho had the lowest rates at $4,215 for employee-only coverage and $9,365 for family coverage while the Commonwealth of Massachusetts had the highest rates at $5,700 and $14,138, respectively. Family coverage includes any coverage other than employee-only (or single) coverage.

According to Rev. Rul. 2010-13:

HHS recognizes that there may be areas in some States with meaningfully higher premium rates. For the 2010 taxable year, HHS may provide additional average premium rates for the small group market in certain areas within States. However, in no case will any such additional sub-State rates be lower than the applicable rate for each State that is set forth in this Revenue Ruling.

Contact Vision Payroll for further information on the average premium for the small group markets during 2010.

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Expenses Counted in Calculating the Health Care Credit.

Employers must make a nonelective contribution on behalf of each employee participating in a qualified health plan. The percentage contributed on behalf of each employee must be uniform for all employees and must not be less than 50% of the cost of the coverage. If the portion paid by the employer is less than 100%, only the portion paid by the employer counts toward the credit. For example, if a monthly premium is $1,000 and the employer pays $700 or 70%, only the $700 counts toward the credit. This is true even if the employee’s portion is treated as paid by the employer through a salary reduction arrangement under §125 of the Internal Revenue Code of 1986.

Furthermore, an additional cap is imposed that limits the portion eligible for the credit to the amount that would have been paid if the employer had been enrolled in a plan that charges the average premium for a small group market plan for the state or area of the state where the employer offers coverage. The average premium and the state or area of the state to which it applies will be determined by the Secretary of Health and Human Services.

The next topic to be covered in this series is the Maximum Credit for Qualified Employers other than Tax-Exempt Employers. Contact Vision Payroll if you have further questions on Expenses Counted in Calculating the Health Care Credit.