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Small Business Tax Credit

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Making insurance more affordable for Minnesota families

In today’s health insurance marketplace, many small businesses in Minnesota struggle to find affordable coverage options for their workers. While these small businesses would have new options in an Exchange beginning in 2014, health reform provides some immediate relief with a small business tax credit that began in 2010. This tax credit helps small employers with low- and moderate-income workers cover their workers. Minnesota businesses may be eligible if they cover at least 50 percent of the cost of health care coverage for workers, pay average annual wages below $50,000 and have fewer than the equivalent of 25 full-time employees. The number of employees is determined based on a formula that counts part-time employees on a pro-rated basis so employers who have more than 25 individual workers may qualify if some of their workers are part-time. See IRS.gov for more details on the new small business tax credit.

What businesses are eligible for the Small Business Health Care Tax Credit if they choose to offer health coverage to employees?

The credit is targeted to help employers with low- and moderate-income workers afford to offer employees health insurance coverage. Small businesses may be eligible if they cover at least 50 percent of the cost of health care coverage for their workers, pay average annual wages below $50,000 and have fewer than the equivalent of 25 full-time employees. The number of employees is determined based on a formula that counts part-time employees on a pro-rated basis so employers that have more than 25 individual workers may qualify if some of their workers are part-time. See IRS.gov for more details on the small business health care tax credit.

What if my small business doesn’t offer insurance today, but I choose to start offering insurance this year. Will I be eligible for these tax credits?

Yes. The tax credit is available to small businesses that provide coverage today as well as those that choose to begin offering such coverage.

How much is the tax credit?

For each year from 2010 through 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible nonprofits (tax-exempt employers).

In 2014, the value of the credit will increase to 50 percent of premiums paid by eligible small businesses and 35 percent of premiums paid by eligible nonprofits (tax-exempt employers).

The size of the credit depends on average wages and the number of employees. The full credit is available to firms with average wages below $25,000 and fewer than 10 full-time equivalent workers. It phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers. The IRS has published details on the new small business tax credit on its website (IRS.gov).