26 U.S.C. § 45R — Employee health insurance expenses of small employers

(a) General rule For the general business credit, an "eligible small employer" gets the "small employer health insurance credit" for each year that falls in its "credit period," in the amount subsection (b) works out. (b) Health insurance credit amount Take the smaller of two numbers: (1) the total nonelective contributions the employer actually made for its employees' premiums on qualified health plans bought through an Exchange, under the arrangement described in (d)(4); or (2) what the employer would have contributed if every one of those employees had instead enrolled in a plan priced at the average small-group-market premium for their rating area, as the Secretary of Health and Human Services determines it. Multiply that smaller number by 50 percent — or 35 percent if the employer is tax-exempt. That's the credit, before the phaseout in subsection (c). (c) Phaseout of credit amount based on number of employees and average wages The credit from (b) gets reduced — never below zero — by adding two amounts: (1) The credit times a fraction: the employer's full-time-equivalent employee count above 10, divided by 15. (2) The credit times another fraction: the employer's average annual wages above the dollar threshold set in (d)(3)(B), divided by that same threshold. (d) Eligible small employer (1) An employer is "eligible" for a year if: (A) it has no more than 25 full-time equivalent employees; (B) its average annual wages don't exceed twice the (3)(B) dollar threshold; and (C) it has the contribution arrangement described in (4) in place. (2) Full-time equivalent employees: (A) Take the total hours the employer paid wages for that year and divide by 2,080; round down to the nearest whole number. (B) If any one employee works more than 2,080 hours in the year, the extra hours don't count. (C) The Secretary, with the Secretary of Labor, sets rules for figuring hours for employees not paid by the hour. (3) Average annual wages: (A) Take total wages paid that year and divide by the full-time-equivalent count from (2); round down to the nearest $1,000. (B) The dollar threshold used in (1)(B) and (c)(2) is $25,000 for tax years starting in 2010 through 2013. For later years, it's $25,000 times the cost-of-living adjustment under section 1(f)(3), with "calendar year 2012" swapped in for "calendar year 2016" in that formula. (4) Contribution arrangement: The employer must require a nonelective contribution, for each employee who enrolls in a qualified plan through an Exchange, equal to a uniform percentage — at least 50 percent — of that plan's premium. (5) Seasonal workers: A seasonal worker's hours and wages don't count toward the full-time-equivalent count or average wages, unless that worker works for the employer more than 120 days in the year. "Seasonal worker" is defined the way the Secretary of Labor defines it, including workers under section 500.20(s)(1) of title 29 of the Code of Federal Regulations and retail workers hired only for the holidays. (e) Other rules and definitions (1) "Employee" doesn't include: a self-employed individual under section 401(c)(1); a 2-percent shareholder of an S corporation (section 1372(b)); a 5-percent owner (section 416(i)(1)(B)(i)); or a family member or dependent of any of those three, as described in section 152(d)(2). But it does include a leased employee under section 414(n). (2) "Credit period" means the 2 consecutive tax years starting with the first year the employer (or a predecessor) offers a qualified health plan to employees through an Exchange. (3) "Nonelective contribution" means an employer contribution that isn't part of a salary-reduction arrangement. (4) "Wages" has the meaning given in section 3121(a), without that section's dollar cap. (5) Related employers under section 414(b), (c), (m), or (o) are combined and treated as one employer, and rules like section 52(c), (d), and (e) apply. (f) Credit made available to tax-exempt eligible small employers (1) A tax-exempt eligible small employer gets this as a payroll-tax credit instead of an income-tax credit — capped at the smaller of the credit amount this section would otherwise give, or the employer's payroll taxes for the calendar year its tax year begins in. (2) "Tax-exempt eligible small employer" means an eligible small employer that's a tax-exempt organization under section 501(c) and 501(a). (3) "Payroll taxes" means: (A) income tax the employer must withhold from employees under section 3401(a); Social Security and Medicare tax withheld under section 3101(b); and the employer's own share of those taxes under section 3111(b). (B) A rule like section 24(d)(2)(C) applies here too. (g) Application of section for calendar years 2010, 2011, 2012, and 2013 For those years, the section works a bit differently: (1) The credit doesn't require being in a "credit period" — but for years after 2013, no credit period can be treated as starting before 2014. (2) The credit rate is 35 percent (25 percent for tax-exempt employers) instead of 50/35 percent; it's based on contributions toward "health insurance coverage" as section 9832(b)(1) defines it; and the comparison premium is the average small-group premium for the employer's whole state (or a smaller area the Secretary of Health and Human Services specifies), not just its rating area. (3) The contribution arrangement in (d)(4) still counts even if it lets employees buy insurance outside an Exchange. (h) Insurance definitions Any term this section shares with the Public Health Service Act or the Affordable Care Act's Title I, Subtitle A means whatever that other law says it means. (i) Regulations The Secretary must write regulations needed to carry out this section, including rules to stop employers from dodging the 2-year credit-period limit by using successor companies, or dodging the (c) phaseout limits by splitting into multiple entities.