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Small Business Digest

    February 2017

Expert Offers Help In Calculating Healthcare Tax Options For 2011

Outlined below is a summary and example of how to calculate the Small Group Tax Credit which does apply for 2010.  It was prepared by Jordan Shields of the SSM group. 

He warns however that "nothing the tax authority writes is ever simple or easy – nor can it easily withstand scrutiny.  Therefore, we are happy to help you determine if the credit applies to you for 2010. He offers the following summary and explanation:  

Small Group Tax Credit

 Qualifying Group:

  1. Contributes at least 50% of the average employee premium on health insurance.
  2. Has less than 25 full time employees or their equivalent.
  3. Has average wages below $50,000 per full time employee or equivalent

 Basic Rules:

  1. Only count the employer contribution for credit purposes.
  2. Salary reduction opted by the employee does not count as employer contribution.
  3. The final credit taken must offset any business deduction for health insurance
  4. Plans are tested together if written together (e.g. medical and vision)
  5. Credit amount is 35% (25% for non profits) of the calculation – 50% in 2014
  6. In 2010 may count the entire premium paid, even though law began March 23


  1. For non profits it is taken as a credit against payroll taxes and is the lesser of the credit amount or the total withholding,
  2. FICA and Medicare tax taken for employees.For for profit entity, the credit is taken on the annual income tax return. 
  3. If there is no income for the organization for the year, it may be rolled over to future years.


  1. Determine premium paid:  Must be lesser of actual premium OR the benchmark for California (which is $4,628 per year for a single employee and $10,957 if there are dependents included).  Premium includes medical, dental and vision, with dental and vision combined with medical only if written as one contract.
  2. Determine Full Time Employees: exclude family members (even if paid), seasonal employees (under 120 days), owners (sole proprietor, partner, LLC member or S Corporation shareholder with 2% or more of the stock).  Must also include any controlled or affiliated service group employees.  Simple calculation is to take the total number of employees and divide by 2,080 (hours).  This is rounded down to the next whole number.If less than ten, all may be taken into account.  If 10 or more but less than 26, there is a phase out using this formula:  (number of FTE over 10 divided by 15). 
  3. Determine Average Wages:  Divide total wages by the number of employees you have in step 2 (full time employees).
  4. If less than $25,000, all may be taken into account.  If $25,000 or more but less than $50,000, there is a phase out using this formula (amount over $25,000 divided by $/25,000) 
  5. If there is a phase out for both #2 and #3, the reduction is the sum of the amount of the two reductions.

Calculation Examples:

Full Time Employees:

Assume 5 full time employees – all at 2,080 hours = 10,400 hours.
Assume 3 part time employees at 1,040 hours each = 3,120 hours.
Assume 1 employee at 2,300 hours, reduced to 2,080 cap = 2,080.
Total hours = 15,600 which is divided by 2,080 for a total of 7.5.
This is rounded down to 7 which is then considered to be number of full time employees,

Average Wages:

Assume $224,000 in wages (excluding owners) with 7 employees (above)
The average wage is $32,000 ($224,000/7) which will be needed to meet phase out credit

 Credit Calculations:

Assumes $75,000 in premium paid.
Assumes total premium paid does not exceed California “cap,”
Assumes for profit entity – so credit is 35%.
Final credit for calculation purposes would be $26,250.
A – organization with fewer than 10 employees and $25,000 in average wages.
The calculation stands and the credit taken is $26,250.
B – organization has 12 full time employees and less than $25,000 in average wages.
Credit is reduced by phase out formula for excessive number of full time employees.
$26,250 x 2/15 = $3,500.
Final credit is $26,250 less $3,500 for total of $22,750.
C – organization has 9 full time employees and $30,000 in average wages.
Credit is reduced by phase out formula for excessive average wages.
$26,250 x $30,000/$25,000 = $3,150
Final credit is $26,250 less $3,150 for total of $23,100.
D – organization has 12 full time employees and $30,000 in average wages.
Credit is reduced by the total of both phase outs.
Final credit is $26,250 less $3,500 = $22,750 less $3,150 = $19,600

 For more details and help contact Jordan Shields directly at


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