The new health reform law gives a tax credit in 2010 to certain small employers that provide health coverage to their employees.  Generally, a small employer is defined as having no more than 25 employees and average annual wages of less than $50,000 per employee.  The credit can be claimed by both taxable and tax-exempt companies.  The IRS has already issued guidance to help us answer questions.

Some key information from the guidance includes:

• An employer is based on a control group or affiliated service group definition, so companies under common control per the IRS code would have to be counted together;

• The number of employees is based on full-time equivalents, and there are instructions on how to count the FTEs;

• The credit is based on the employer-paid portion of the premium only;

• The formula for how the credit reduces for companies with over 10 employees or $25,000 in average wages;

• The average wage is based on the FICA definition of wages without regard to the wage base limitation; and

• The employer has to pay at least 50% of the premium for each employee to qualify, and the cost is based on the cost of single coverage only.

For a definition of control group:
http://www.cowanbenefit.com/files/definition of control group.pdf.

As we discussed in our previous updates, much of the health reform legislation will need to be clarified by regulations issued, and this is the first of such regulations.  We will attempt to keep you informed as to how these regulations affect you as an employer sponsoring a health plan.