SHOP tax credit impacted by small group market rating area


Issue:

You run a small business and offer a health insurance plan to your nine full-time employees through the SHOP Exchange. The employees have average annual wages of $23,000; all are enrolled in coverage; and you pay 50 percent of all the premiums — which are $6,000 per employee annually — so you naturally expect to get a SHOP tax credit. However, when you went to the SHOP tax credit estimator on healthcare.gov, your tax credit was less than $27,000 (nine times the $3,000 you’re paying for each employee’s premium). What could be happening?

Answer:    

It is likely that your employees’ premiums exceed the average premium for the small group market in your rating area. For example, if the average premium for the small group market in your rating area is $5,000 for employee-only coverage, 50 percent of the average premium for the small group market in your rating area is $2,500. This is what your tax credit would be based on, so you may be looking at a credit of nine times $2,500, or $22,500.

The IRS and the Department of Health and Human Services (HHS) calculate the average premium figures for the Small Employer Health Care Tax Credit each year. For years beginning in 2014, the average premium figures will be found on the HHS website.

Source: IRS final regulations, 79 FR 36640, June 30, 2014; Small Business Health Care Tax Credit Questions and Answers: Calculating the Credit, http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Calculating-the-Credit.

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