Tax Aspects of the Healthcare Act

Tax Credit Provisions
Premium Assistance Credit - The Act provides for two new tax credits under the Internal Revenue Code (“IRC”). First, the Act creates new IRC § 36B which is the premium assistance credit for individual taxpayer assistance. § 36B provides for a refundable tax credit that eligible taxpayers can use to help cover the cost of health insurance for themselves and their families. The credit only applies to the payment for health insurance provided under a state health benefit exchange (which each state is required to establish under the Act). The credit will be paid directly to the health benefit exchange program by Treasury and the taxpayer will be required to pay the difference between the total health insurance premiums due under the program and the credit amount paid by Treasury.

The premium assistance credit will be available for years ending after December 31, 2013, and will be determined based upon the taxpayer’s income. The credit is available for individuals with household incomes between 100% and 400% of the federal poverty level, depending on the family size involved, who do not receive health insurance through an employer or a spouse’s employer.

Small Business Tax Credit - The Act provides new IRC § 45R which allows a business tax credit, under IRC § 38, of up to 50% of non-elective contributions that a small business makes on behalf of its employees for insurance premiums. For purposes of § 45R, a small business is defined as a business with up to 25 employees and average annual wages of less than $40,000. However, the credit is subject to phase-out limitations. Employers with 10 or fewer employees and average wages of less than $20,000 would get 100% of the credit. The credit begins to phase out for an employer with 10 employees and is completly phased out at the 25-employee limit. The small business tax credit will be available for tax years beginning after December 31, 2010.

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