An eligible small employer may claim a tax credit if it makes nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of its participating employees. An employer’s self-insured plan is not health insurance coverage for purposes of the credit. Because health FSAs are self-insured plans, these arrangements are not health insurance coverage. Health savings accounts (HSAs) and health reimbursement arrangements (HRAs) do not qualify either.
Health insurance defined. For years prior to 2014, health insurance 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. Health insurance coverage for purposes of the credit also includes the following plans:
- limited scope dental or vision;
- long-term care, nursing home care, home health care, community-based care, or any combination thereof;
- coverage only for a specified disease or illness;
- hospital indemnity or other fixed indemnity insurance;
- Medicare supplemental insurance;
- certain other supplemental coverage; and
- similar supplemental coverage provided to coverage under a group health plan.
Health insurance coverage does not include the benefits listed in Code Sec. 9832(c)(1), such as coverage only for accident or disability income insurance, liability insurance, or workers’ compensation.
Source: IRS Notice 2010-82, I.R.B. 2010-51, December 2, 2010.