IRS Issues Proposal To Implement Small Business Credit Under ACA

The Internal Revenue Service has issued a proposed rule that aims to provide guidance on the small business tax credit under the Affordable Care Act (ACA). The ACA added section 45R to the Internal Revenue Code, which offers a tax credit to certain small employers that provide insured health coverage to their employees.

To take advantage of this tax credit, small employers (those with 25 or fewer full-time equivalent employees) must have in place a contribution arrangement through which they can make a non-elective contribution on behalf of each employee who enrolls in a qualified health plan (QHP) offered to employees by the employer. The contribution amount must be at least 50 percent of the QHP's premium cost. In addition, the average annual wages of the employer's FTEs cannot currently exceed $50,000. Through 2013, the maximum credit is 35 percent of premiums paid for small business employers and 25 percent of premiums paid for small tax-exempt employers such as