Qualifying requirements for the tax credit

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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?

** 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.