Frequently Asked Questions
The health insurance exchanges will be available beginning January 1, 2014. (Some states are already working to make them available earlier.) If HHS determines before 2013 that a state is not going to have an operational exchange by 2014, the HHS Secretary will step in and establish the exchange in that state.
Beginning in 2017, states will have the flexibility (for up to 5 years) to make changes related to the exchange, qualified health plans, cost-sharing reductions, tax credits and individual and employer responsibility requirements.
How much is the tax credit?
There is a sliding-scale tax credit of up to 35% of the employer’s eligible premium expenses for tax years 2010–2013. Employers with 10 or fewer full-time employees, paying annual average wages of $25,000 or less, qualify for the maximum credit.
Beginning in tax year 2014, the maximum tax credit increases to 50% of premium expenses and coverage must be purchased from a state health insurance exchange. This tax credit is available for a total of any two years.
For tax-exempt employers, the same employee and wage requirements apply, but the maximum tax credit is 25% of eligible premium expenses for tax years 2010 – 2013, increasing to 35% in 2014.
The amount of the tax credit cannot exceed the total income and Medicare tax the employer is required to withhold from employees’ annual wages, plus the employer’s share of the Medicare tax.
Who is eligible for the tax credit?
Small employers that provide healthcare coverage are eligible (a “qualified employer”) if:
- They have fewer than 25 full-time equivalent employees (FTEs)* for the tax year
- The average annual wages paid are less than $50,000** per FTE
- The employer pays at least 50% of the premium cost under a “qualified arrangement”
* FTEs may be calculated in any of three ways to maximize the tax credit. See “How is the number of employees determined for eligibility?” below.
** Wage limits will be indexed to the Consumer Price Index for Urban Consumers (CPI-U) for tax years beginning in 2014.
A “qualified arrangement” means:
The employer pays 50% or more of the cost of the employee-only premium for coverage through a state-licensed company for traditional health insurance. This contribution requirement also applies to add-on coverage including vision, dental and other limited-scope coverage.
Is a tax-exempt organization a qualified employer?
Yes. The same definition of qualified employer applies, but the amount of the tax credit is lower and special rules apply.