Key Facts about the Small Business Health Care Tax Credit

• The tax credit, which is effective immediately, can cover up to 35 percent of the premiums a small business pays to cover its workers. In 2014, the rate will increase to 50 percent.
• The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.
• Both small for-profit businesses and small not-for-profit organizations are eligible.

Key Elements

• Available Immediately. The credit is effective January 1, 2010. As a result, small businesses that provide health care for their workers will receive immediate help with their premium costs, and additional firms that initiate coverage this year will get a tax cut as well.
• Broad Eligibility. The Council of Economic Advisors estimates that 4 million small businesses are eligible for the credit if they provide health care to their workers. Qualifying firms must have less than the equivalent of 25 full-time workers (e.g., a firm with fewer than 50 half-time workers would be eligible), pay average annual wages below $50,000, and cover at least 50 percent of the cost of health care coverage for their workers.
• Substantial Benefit. The credit is worth up to 35 percent of a small business’s premium costs in 2010. On January 1, 2014, this rate increases to 50 percent.
• Non-Profits Eligible. Tax-exempt organizations are eligible for a 25 percent tax credit in 2010. In 2014, this rate increases to 35 percent. (The credit rates are lower for non-profits to ensure that the value of the credit is approximately equal to that provided to for-profit firms that cannot claim a tax deduction for the amount of the credit claimed.)
• Gradual Phase-Outs. The credit 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.
• Premium Cost Eligibility. To avoid an incentive to choose a high-cost plan, an employer’s eligible contribution is limited to the average cost of health insurance in that state.