Tucked inside the massive healthcare legislation passed earlier this year is an immediate tax credit for certain employers that employ less than twenty-five (25) “full time equivalent” employees who are paid, on average, less than $50,000 per year. Although the credit will be limited to a small number of employers, it can be quite beneficial to those employers that are eligible. It is worth some number-crunching to determine your eligibility.

The credit amount is determined with reference to the insurance premiums paid by the employer for the health care insurance of its employees. The credit can be as much as 35% of these premiums paid by the employer; if the employer is a tax-exempt entity, the maximum amount of the credit is limited to 25% of the insurance premiums paid by the employer. This percentage is reduced as the average annual wage paid and number of full time equivalent increases.

The credit can be quite a benefit for a small business’ bottom line, but not unlike many other tax credits, there are exclusions, limitations and other nuances that must be carefully reviewed to determine whether an employer is eligible for this credit and the credit amount. Some of these are discussed below:

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