Discussion:Small Employer Health Insurance Credit

I haven't been able to find any specific reference that says the insurance coverage has to be under the employer's name.

Anyone have any input on this?

A. In order to be an eligible small employer, (1) the employer must have fewer than 25 full-time equivalent employees (FTEs) for the taxable year; (2) the average annual wages of its employees for the year must be less than $50,000 per FTE; and (3) the employer must maintain a “qualifying arrangement.” A qualifying arrangement is an arrangement under which the employer pays premiums for each employee enrolled in health insurance coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage (but see section V of this notice for transition relief for taxable years beginning in 2010 with respect to the requirements for a qualifying arrangement). An employer that is an agency or instrumentality of the federal government, or of a State, local or Indian tribal government, is not an eligible small employer for purposes of section 45R unless it is an organization described in section 501(c) that is exempt from tax under section 501(a).

For years prior to 2014, health insurance coverage for purposes of the credit means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer.

This is where the water seems to get muddied. Would not reimbursement of premiums paid to a non-employer plan fall under "otherwise"?

To receive the tax credit, an eligible small employer must pay a uniform percentage (not less than 50 percent) of the premium for each employee enrolled in health insurance coverage offered by the employer.

It would seem to me that if an ER is reimbursing employees different amounts under different policies, the "uniform percentage of the premium for each employee" would be very hard to meet.

But I do agree, the employer may fail the "must pay at least 50% of the premium" test. This will have to be tested on an employee-by-employee basis. But recall that all the employer has to pay is at least 50% of the self-only premium (even if the employee has non-self only coverage). And to GJBoweEA, I don't think your citation is completely on point. You're quoting the definition of health insurance coverage, which is important only to determine if the policy qualifies as a "health insurance" to begin with. (And the policy has to be issued by a licensed insurer, etc., but that generally isn't a problem even with a reimbursment arrangement). All your quote is saying is that the benefit of medical care has to be paid directly by insurance and if not paid directly by insurance, and the patient has to come out of pocket first, then the insurer will reimburse the patient. But, where you quote does have relevance is with the word "any" right in front of "hospital or medical service policy or certificate." But all this tells us is that "any" policy (not just one in the name of the employer) could potentially qualify as health insurance coverage and does not truly speak to the "offered by" issue.

The major problem I have with the "reimbursement of employees for coverage provided by spouse employers" is this. Many (if not most) of these premiums are already pre-tax under an FSA plan or other cafeteria arrangement. Notice 210-44 specifically states these are not arrangements eligible for the credit, just like self insured plans are not eligible for the credit.

A qualifying arrangement is an arrangement under which the employer pays premiums for each employee enrolled in health insurance coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage (but see section V of this notice for transition relief for taxable years beginning in 2010 with respect to the requirements for a qualifying arrangement)

V. Transition Relief For Taxable Years Beginning In 2010 Because the section 45R credit applies to taxable years beginning in 2010 (including the period in 2010 before enactment of the Affordable Care Act), an employer that satisfies the requirements for the transition relief in this section V will be deemed to satisfy the requirement for a qualifying arrangement that the employer pay a uniform percentage (not less than 50 percent) of the premium cost of the health insurance coverage (uniformity requirement). Specifically, for taxable years beginning in 2010, an employer that pays an amount equal to at least 50 percent of the premium for single (employee-only) coverage for each employee enrolled in coverage offered to employees by the employer will be deemed to satisfy the uniformity requirement for a qualifying arrangement, even if the employer does not pay the same percentage of the premium for each such employee. Thus, an employer will be deemed to satisfy the uniformity requirement for a qualifying arrangement if it pays at least 50 percent of the premium for single coverage for each employee receiving single coverage, and, if the employer offers coverage that is more expensive than single coverage (such as family or self-plus-one coverage), if it pays an amount for each employee receiving that more expensive coverage that is no less than 50 percent of the premium for single coverage for that employee (even if it is less than 50 percent of the premium for the more expensive coverage the employee is actually receiving).

Let's say Employer has two qualifying employees. Employer pays 60% of coverage for Employee #1 (who is single and has single coverage). Let's say total premium cost for Employee #1 is $5,000, so employer pays $3,000. Employer also pays 60% of "single" coverage for Employee #2 (but Employee #2 has family coverage). So, employer pays the same $3,000 for Employee #2. However, total premium cost for Employee #2, based on actual family coverage, is $7,000.

At the end of the day, Employer has paid 60% of total premium cost for Employee #1, yet 42.86% of the total premium cost for Employee #2. But at the same time, Employer has indeed paid 60% of single coverage for both employees.

Has the uniformity requirement been violated?