Calculator for New Small Business Health Insurance Tax Credit

One of the health reform package’s benefits for small businesses that takes effect immediately – this year – is a new health care tax credit that will help small businesses save on insurance costs.

Want to determine if your business could qualify for this credit, and if so at what level? SmallbusinessMajority.org has built a handy online calculator to help you find out. We’re embedding it here. Read on for more details on how to determine the inputs (or, you can use this worksheet from the IRS to get started).

Calculator property of Small Business Majority and its subsidiary website California Health Coverage Guide

Small businesses that pay at least 50 percent of health premium costs will be eligible for a credit of up to 35 percent in 2010-2013, and up to 50 percent for two years starting in 2014 (tax-exempt non-profits will also qualify for credits of up to 25 percent in 2010-2013 and 35 percent starting in 2014).

The maximum credit will go to businesses with 10 or fewer full-time equivalents (FTEs) and average employee wages of $25,000 or less. The credit percentage phases down as FTEs and average wages increase, phasing out at 25 FTEs and/or $50,000 average wages.

The Council of Economic Advisors estimates 4 million small businesses could qualify if they offer health coverage; the Congressional Budget Office has estimated the credit will provide a benefit of $40 billion to small businesses over 10 years.

Here are more details for determining inputs for the calculator:

1. Count your full-time equivalents (FTEs):
   For each employee who worked 2,080 hours in the year or more, count that as 1 FTE. For employees who worked less than 2,080 hours, add up all their hours, divide by 2,080, and round down to the nearest whole number to get an FTE number for part-time employees. Now add these two numbers together. Don’t count owners or family members, or seasonal workers who work less than 120 days out of the year. Enter your FTE number in the first box in the calculator.
2. Calculate your average employee wages:
   Add up total wages for all employees counted in your FTE calculation (both full-time and part-time). Divide this amount by the FTE number you calculated in step 1 and round down to the nearest $1,000. Enter your average wages number in the second box in the calculator.

3. Determine your premium contributions:
   Determine your total premium contributions for employees counted in the FTE calculation, verify that you are paying at least 50 percent of total premiums, and if so enter your premium contribution amount in the third box in the calculator.

The CAP calculator will then calculate your estimated credit amount (if the calculator estimates that you will not qualify for a credit, it will display “N/A”).

For more information, visit the new page about the small business tax credit on the IRS website.