IRS Releases Average Premiums for Determining Small Business Health Care Credit

May 3, 2010

The IRS on Monday issued average small group market premiums for use in determining the new small business health care credit under IRC § 45R (Rev. Rul. 2010-13).

The Patient Protection and Affordable Care Act, P.L. 111-148, provides tax credits for small businesses, beginning in years after 2009, designed to increase levels of health insurance coverage. In 2010, small businesses—defined as businesses with 25 or fewer employees and average annual wages of less than $50,000—are eligible for credits of up to 35% of nonelective contributions the businesses make on behalf of their employees for insurance premiums. Tax-exempt organizations get a 25% credit against payroll taxes.

The amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the tax year, and (2) the amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the state (or in an area in the state) in which the employer is offering health insurance coverage.

For purposes of item (2), the revenue ruling provides a table setting forth the average premium for the small group market in each state for the 2010 tax year, as determined by the secretary of Health and Human Services (HHS).

The revenue ruling also notes that for the 2010 tax year, HHS may provide additional average premium rates for the small group market in certain areas within states. However, in no case will any such additional sub-state rates be lower than the applicable rate for each state that is set forth in Rev. Rul. 2010-13.

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