The
IRS has released proposed regulations that provide guidance on the Code Sec.
45R tax credit available to certain small employers offering health insurance
coverage to their employees. The proposed regulations affect certain taxable
and tax-exempt employers. The regulations are proposed to be effective the date
the final regulations are published in the Federal Register, and apply to tax
years beginning after December 31, 2013.
SEC. 45R.EMPLOYEE HEALTH
INSURANCE EXPENSES OF SMALL EMPLOYERS.
45R(a)General Rule.—
For purposes of section 38, in the case of an eligible small
employer, the small employer health insurance credit determined under this
section for any taxable year in the credit period is the amount determined
under subsection (b).
Subject to subsection (c), the amount determined under this
subsection with respect to any eligible small employer is equal to 50 percent
(35 percent in the case of a tax-exempt eligible small employer) of the lesser
of—
the aggregate amount of nonelective contributions the employer
made on behalf of its employees during the taxable year under the arrangement
described in subsection (d)(4) for premiums for qualified health plans offered
by the employer to its employees through an Exchange, or
the aggregate amount of nonelective contributions which the
employer would have made during the taxable year under the arrangement if each
employee taken into account under paragraph (1) had enrolled in a qualified
health plan which had a premium equal to the average premium (as determined by
the Secretary of Health and Human Services) for the small group market in the
rating area in which the employee enrolls for coverage.
The amount of the credit determined under subsection (b) without
regard to this subsection shall be reduced (but not below zero) by the sum of
the following amounts:
Such amount multiplied by a fraction the numerator of which is the
total number of full-time equivalent employees of the employer in excess of 10
and the denominator of which is 15.
Such amount multiplied by a fraction the numerator of which is the
average annual wages of the employer in excess of the dollar amount in effect
under subsection (d)(3)(B) and the denominator of which is such dollar amount.
For purposes of this section—
The term "eligible small employer" means, with
respect to any taxable year, an employer—
which has no more than 25 full-time equivalent employees for the
taxable year,
the average annual wages of which do not exceed an amount equal to
twice the dollar amount in effect under paragraph (3)(B) for the taxable year,
and
which has in effect an arrangement described in paragraph (4).
The term "full-time equivalent employees" means
a number of employees equal to the number determined by dividing—
the total number of hours of service for which wages were paid by
the employer to employees during the taxable year, by
2,080.
Such number shall be rounded to the next lowest whole number if
not otherwise a whole number.
If an employee works in excess of 2,080 hours of service during
any taxable year, such excess shall not be taken into account under
subparagraph (A).
The Secretary, in consultation with the Secretary of Labor, shall
prescribe such regulations, rules, and guidance as may be necessary to
determine the hours of service of an employee, including rules for the
application of this paragraph to employees who are not compensated on an hourly
basis.
The average annual wages of an eligible small employer for any
taxable year is the amount determined by dividing—
the aggregate amount of wages which were paid by the employer to
employees during the taxable year, by
the number of full-time equivalent employees of the employee
determined under paragraph (2) for the taxable year.
Such amount shall be rounded to the next lowest multiple of $1,000
if not otherwise such a multiple.
For purposes of paragraph (1)(B) and subsection (c)(2)—
The dollar amount in effect under this paragraph for taxable years
beginning in 2010, 2011, 2012, or 2013 is $25,000.
In the case of a taxable year beginning in a calendar year after
2013, the dollar amount in effect under this paragraph shall be equal to
$25,000, multiplied by the cost-of-living adjustment under section 1(f)(3) for
the calendar year, determined by substituting "calendar year
2012" for "calendar year 1992" in subparagraph
(B) thereof.
An arrangement is described in this paragraph if it requires an
eligible small employer to make a nonelective contribution on behalf of each
employee who enrolls in a qualified health plan offered to employees by the
employer through an exchange in an amount equal to a uniform percentage (not
less than 50 percent) of the premium cost of the qualified health plan.
For purposes of this subsection—
The number of hours of service worked by, and wages paid to, a
seasonal worker of an employer shall not be taken into account in determining
the full-time equivalent employees and average annual wages of the employer
unless the worker works for the employer on more than 120 days during the
taxable year.
The term "seasonal worker" means a worker who
performs labor or services on a seasonal basis as defined by the Secretary of
Labor, including workers covered by section 500.20(s)(1) of title 29, Code of
Federal Regulations and retail workers employed exclusively during holiday
seasons.
For purposes of this section—
The term "employee" shall not include—
an employee within the meaning of section 401(c)(1),
any 2-percent shareholder (as defined in section 1372(b))
of an eligible small business which is an S corporation,
any 5-percent owner (as defined in section 416(i)(1)(B)(i))
of an eligible small business, or
any individual who bears any of the relationships described in
subparagraphs (A) through (G) ofsection 152(d)(2) to, or is a dependent
described in section
152(d)(2)(H) of, an individual described in clause (i), (ii),
or (iii).
The term "employee" shall include a leased
employee within the meaning of section 414(n).
The term "credit period" means, with respect
to any eligible small employer, the 2-consecutive-taxable year period beginning
with the 1st taxable year in which the employer (or any predecessor) offers 1
or more qualified health plans to its employees through an Exchange.
The term "nonelective contribution" means an
employer contribution other than an employer contribution pursuant to a salary
reduction arrangement.
The term "wages" has the meaning given such
term by section 3121(a) (determined without regard to any dollar limitation
contained in such section).
All employers treated as a single employer under subsection (b),
(c), (m), or (o) ofsection
414 shall be treated as a single employer for purposes of this
section.
Rules similar to the rules of subsections (c), (d), and (e) of section 52 shall
apply.
In the case of a tax-exempt eligible small employer, there shall
be treated as a credit allowable under subpart C (and not allowable under this
subpart) the lesser of—
the amount of the credit determined under this section with
respect to such employer, or
the amount of the payroll taxes of the employer during the
calendar year in which the taxable year begins.
For purposes of this section, the term "tax-exempt
eligible small employer"means an eligible small employer which is any
organization described in section 501(c) which is exempt from taxation
undersection 501(a).
For purposes of this subsection—
The term "payroll taxes" means—
amounts required to be withheld from the employees of the
tax-exempt eligible small employer undersection 3401(a),
amounts required to be withheld from such employees under section 3101(b),
and
amounts of the taxes imposed on the tax-exempt eligible small
employer under section
3111(b).
A rule similar to the rule of section 24(d)(2)(C) shall apply for
purposes of subparagraph (A).
In the case of any taxable year beginning in 2010, 2011, 2012, or
2013, the following modifications to this section shall apply in determining
the amount of the credit under subsection (a):
The credit shall be determined without regard to whether the
taxable year is in a credit period and for purposes of applying this section to
taxable years beginning after 2013, no credit period shall be treated as
beginning with a taxable year beginning before 2014.
The amount of the credit determined under subsection (b) shall be
determined—
by substituting "35 percent (25 percent in the case of a
tax-exempt eligible small employer)" for "50 percent (35
percent in the case of a tax-exempt eligible small employer)",
by reference to an eligible small employer's nonelective
contributions for premiums paid for health insurance coverage (within the
meaning of section
9832(b)(1)) of an employee, and
by substituting for the average premium determined under
subsection (b)(2) the amount the Secretary of Health and Human Services
determines is the average premium for the small group market in the State in
which the employer is offering health insurance coverage (or for such area
within the State as is specified by the Secretary).
An arrangement shall not fail to meet the requirements of
subsection (d)(4) solely because it provides for the offering of insurance
outside of an Exchange.
Any term used in this section which is also used in the Public
Health Service Act or subtitle A of title I of the Patient Protection and
Affordable Care Act shall have the meaning given such term by such Act or
subtitle.
The Secretary shall prescribe such regulations as may be necessary
to carry out the provisions of this section, including regulations to prevent
the avoidance of the 2-year limit on the credit period through the use of
successor entities and the avoidance of the limitations under subsection (c)
through the use of multiple entities.
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