Small businesses will have some help this year to cover employees' health care insurance. As many small business owners have reported, the cost of care for employees has been rising, leaving some businesses to forgo coverage, or be forced to have higher deductibles, and having effects such as not being able to hire more employees, as a recent Senate Committee heard in testimony.

The Small Business Health Credit is already effective. Both small for-profit businesses and small not-for-profit organizations are eligible for this credit. For regular businesses, the credit can be up to 35 percent of a small business' premium costs in 2010. On January 1, 2014, the rate increases to 50 percent; a business can claim the credit for 2010 through 2013 and for any two years after 2013. Non-profits will be eligible for a 25 percent tax credit in 2010, which increases to 35 percent in 2014.

An estimated four million small businesses will be eligible for the credit if providing health care to their workers. The businesses who qualify must have fewer than the equivalent of 25 full-time workers (such as a business with fewer than 50 part-time workers), pay average annual wages lower than $50,000 and cover at least 50 percent of the health care coverage for workers. The employer's eligible contribution is limited to the average cost of health insurance in the employer's state. The Department of Health and Human Services (HHS) will be determining the average premium for the small group market in a particular state or state area, and the Internal Revenue Service (IRS) will publish details.

The employer-paid premiums must meet certain requirements, a "qualifying arrangement." The employer pays premiums for each employee enrolled in employer-offered coverage "in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage," according to the IRS. If the employer only pays a portion of the premiums, that is the only portion counted in the calculation of the tax credit.

The credit will gradually phase out for those businesses with average wages between $25,000 and $50,000, and for firms with the equivalent of between 10 and 25 full-time workers. The owner and family members of the business generally are not considered employees. If the employer has no taxable income for the year, generally the employer cannot claim the credit.

The tax credit is reduced for businesses with over 10 employees or average wages over $25,000. The IRS calculation for that reduction, the IRS calculation for determining the number of full-time employees, and the amount of average wages can be found at: http://www.irs.gov/newsroom/article/0,,id=220839,00.html

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