See the entire law
7
PART
II—SMALL
BUSINESS
TAX
CREDIT
8
SEC.
1421.
CREDIT
FOR
EMPLOYEE
HEALTH
INSURANCE
9
EXPENSES
OF SMALL
BUSINESSES.
10
(a)
IN
GENERAL.—Subpart
D
of
part
IV
of
sub-
11
chapter
A
of
chapter
1
of
the
Internal
Revenue
Code
of
12 1986
(relating
to
business-related
credits)
is
amended
by
13
inserting
after
section
45Q the
following:
14
‘‘SEC.
45R.
EMPLOYEE
HEALTH
INSURANCE
EXPENSES
OF
15
SMALL
EMPLOYERS.
16
‘‘(a)
GENERAL
RULE.—For
purposes
of
section
38,
17 in
the
case
of
an
eligible
small
employer,
the
small
em-
18
ployer
health
insurance
credit
determined
under
this
sec-
19 tion
for
any
taxable
year
in
the
credit
period is
the
amount
20
determined
under
subsection
(b).
21
‘‘(b)
HEALTH
INSURANCE
CREDIT
AMOUNT.—Sub-
22 ject
to
subsection
(c),
the
amount
determined
under
this
23
subsection
with
respect
to
any
eligible
small
employer
is
24 equal
to
50
percent
(35
percent
in the
case
of
a
tax-exempt
25
eligible
small
employer)
of
the
lesser
of—
1
‘‘(1)
the
aggregate
amount
of
nonelective
con-
2
tributions
the
employer
made
on
behalf
of
its
em-
3
ployees
during
the
taxable
year
under
the
arrange-
4
ment
described
in
subsection
(d)(4)
for
premiums
5
for
qualified
health
plans
offered
by
the
employer
to
6
its
employees
through
an
Exchange,
or
7
‘‘(2)
the
aggregate
amount
of
nonelective
con-
8
tributions
which
the
employer
would
have
made
dur-
9
ing
the
taxable
year
under
the
arrangement
if
each
10
employee
taken
into
account
under
paragraph
(1)
11
had
enrolled
in
a
qualified
health
plan
which
had
a
12
premium
equal
to
the
average
premium
(as
deter-
13
mined
by
the
Secretary
of
Health
and
Human
Serv-
14
ices)
for
the
small
group
market
in
the
rating
area
15
in
which
the
employee
enrolls
for
coverage.
16
‘‘(c)
PHASEOUT
OF
CREDIT
AMOUNT
BASED
ON
17
NUMBER
OF
EMPLOYEES
AND
AVERAGE
WAGES.—The
18
amount
of
the
credit
determined
under
subsection
(b)
19
without
regard to
this
subsection
shall
be
reduced
(but
not
20
below
zero)
by
the sum
of
the
following
amounts:
21
‘‘(1)
Such
amount
multiplied
by
a
fraction
the
22
numerator
of
which
is
the
total
number
of
full-time
23
equivalent
employees
of
the
employer
in
excess of
10
24
and
the
denominator
of
which is
15.
1
‘‘(2)
Such
amount
multiplied
by
a
fraction
the
2
numerator
of
which
is
the
average
annual
wages
of
3
the
employer
in
excess of
the
dollar
amount
in
effect
4
under
subsection
(d)(3)(B)
and
the
denominator
of
5
which
is
such
dollar
amount.
6
‘‘(d)
ELIGIBLE
SMALL
EMPLOYER.—For
purposes
of
7 this
section—
8
‘‘(1)
IN
GENERAL.—The
term
‘eligible
small
9
employer’
means,
with
respect
to
any
taxable
year,
10
an
employer—
11
‘‘(A)
which
has
no
more than
25
full-time
12
equivalent
employees
for
the
taxable
year,
13
‘‘(B)
the
average
annual
wages
of
which
do
14
not
exceed
an
amount
equal
to
twice
the
dollar
15
amount
in
effect
under
paragraph
(3)(B)
for
16
the
taxable
year,
and
17
‘‘(C)
which
has
in
effect
an
arrangement
18
described
in
paragraph
(4).
19
‘‘(2)
FULL-TIME
EQUIVALENT
EMPLOYEES.—
20
‘‘(A)
IN
GENERAL.—The
term
‘full-time
21
equivalent
employees’
means
a
number
of
em-
22
ployees
equal
to
the
number
determined
by
di-
23
viding—
24
‘‘(i)
the
total
number
of
hours of
serv-
25
ice
for
which
wages
were
paid
by
the
em-
1
ployer
to
employees
during
the
taxable
2
year,
by
3
‘‘(ii)
2,080.
4
Such
number
shall
be
rounded
to the
next
low-
5
est
whole
number
if
not
otherwise
a whole
num-
6
ber.
7
‘‘(B)
EXCESS
HOURS
NOT
COUNTED.—If
8
an
employee
works in
excess
of
2,080
hours
of
9
service
during
any
taxable
year,
such
excess
10
shall
not
be
taken
into
account
under
subpara-
11
graph
(A).
12
‘‘(C)
HOURS
OF
SERVICE.—The
Secretary,
13
in
consultation
with
the
Secretary
of
Labor,
14
shall
prescribe
such
regulations,
rules,
and
15
guidance
as
may be
necessary
to
determine
the
16
hours
of
service
of
an
employee,
including
rules
17
for
the
application
of
this
paragraph
to
employ-
18
ees
who
are
not
compensated
on
an
hourly
19
basis.
20
‘‘(3)
AVERAGE
ANNUAL
WAGES.—
21
‘‘(A)
IN
GENERAL.—The
average
annual
22
wages
of
an
eligible
small
employer
for any
tax-
23
able
year
is
the
amount
determined
by
divid-
24
ing—
1
‘‘(i)
the
aggregate
amount
of
wages
2
which
were paid
by
the
employer
to
em-
3
ployees
during
the
taxable
year, by
4
‘‘(ii)
the
number
of
full-time
equiva-
5
lent
employees of
the
employee
determined
6
under
paragraph
(2)
for
the
taxable
year.
7
Such
amount shall
be
rounded to
the
next
low-
8
est
multiple
of
$1,000
if
not
otherwise
such
a
9
multiple.
10
‘‘(B)
DOLLAR
AMOUNT.—For
purposes
of
11
paragraph
(1)(B)—
12
‘‘(i)
2011,
2012,
AND
2013.—The
dollar
13
amount
in
effect
under
this
paragraph
for
14
taxable
years
beginning in
2011,
2012,
or
15
2013
is
$20,000.
16
‘‘(ii)
SUBSEQUENT
YEARS.—In
the
17
case
of a
taxable
year
beginning in
a
cal-
18
endar
year
after
2013,
the
dollar
amount
19
in
effect
under
this
paragraph
shall
be
20
equal
to $20,000,
multiplied
by the
cost-of-
21
living
adjustment
determined
under
section
22
1(f)(3)
for
the
calendar
year,
determined
23
by
substituting
‘calendar
year
2012’
for
24
‘calendar
year
1992’ in
subparagraph
(B)
25
thereof.
1
‘‘(4)
CONTRIBUTION
ARRANGEMENT.—An
ar-
2
rangement
is
described
in
this
paragraph
if
it
re-
3
quires
an
eligible
small
employer
to
make a
nonelec-
4
tive
contribution
on
behalf
of each
employee
who
en-
5
rolls
in
a
qualified
health
plan
offered
to
employees
6
by
the
employer
through
an
exchange
in
an
amount
7
equal
to
a
uniform
percentage
(not
less
than
50
per-
8
cent)
of
the
premium
cost
of
the
qualified
health
9
plan.
10
‘‘(5)
SEASONAL
WORKER
HOURS
AND
WAGES
11
NOT
COUNTED.—For
purposes
of
this
subsection—
12
‘‘(A)
IN
GENERAL.—The
number
of
hours
13
of
service
worked
by, and
wages
paid
to,
a
sea-
14
sonal
worker
of
an
employer
shall
not
be
taken
15
into
account
in
determining
the
full-time
equiv-
16
alent
employees
and
average
annual
wages
of
17
the
employer
unless
the
worker
works
for
the
18
employer
on
more
than
120
days
during
the
19
taxable
year.
20
‘‘(B)
DEFINITION
OF
SEASONAL
WORK-
21
ER.—The
term
‘seasonal
worker’
means
a
work-
22
er
who
performs
labor or
services
on
a
seasonal
23
basis
as
defined
by
the
Secretary
of
Labor,
in-
24
cluding
workers
covered
by
section
500.20(s)(1)
25
of
title 29,
Code
of
Federal
Regulations
and
re-
1
tail
workers
employed
exclusively
during
holiday
2
seasons.
3
‘‘(e)
OTHER
RULES
AND
DEFINITIONS.—For
pur-
4 poses
of
this
section—
5
‘‘(1)
EMPLOYEE.—
6
‘‘(A)
CERTAIN
EMPLOYEES
EXCLUDED.—
7
The
term
‘employee’
shall
not
include—
8
‘‘(i)
an
employee
within
the
meaning
9
of
section
401(c)(1),
10
‘‘(ii)
any
2-percent
shareholder
(as
de-
11
fined
in
section
1372(b))
of
an
eligible
12
small
business
which
is
an
S
corporation,
13
‘‘(iii)
any
5-percent
owner
(as
defined
14
in
section
416(i)(1)(B)(i))
of
an
eligible
15
small
business,
or
16
‘‘(iv)
any
individual
who
bears any
of
17
the
relationships
described
in
subpara-
18
graphs
(A)
through
(G)
of
section
19
152(d)(2)
to,
or
is
a
dependent
described
20
in
section
152(d)(2)(H)
of,
an
individual
21
described
in
clause
(i),
(ii),
or
(iii).
22
‘‘(B)
LEASED
EMPLOYEES.—The
term
23
‘employee’
shall
include
a
leased
employee
with-
24
in
the
meaning
of
section
414(n).
1
‘‘(2)
CREDIT
PERIOD.—The
term
‘credit
period’
2
means,
with
respect
to
any
eligible
small
employer,
3
the
2-consecutive-taxable
year
period
beginning
with
4
the
1st
taxable
year
in
which
the
employer
(or
any
5
predecessor)
offers
1
or more
qualified
health
plans
6
to
its
employees
through
an
Exchange.
7
‘‘(3)
NONELECTIVE
CONTRIBUTION.—The
term
8
‘nonelective
contribution’
means
an
employer
con-
9
tribution
other
than
an
employer
contribution
pursu-
10
ant
to
a salary
reduction
arrangement.
11
‘‘(4)
WAGES.—The
term
‘wages’
has
the
mean-
12
ing
given
such
term
by
section
3121(a)
(determined
13
without
regard
to
any
dollar
limitation
contained
in
14
such
section).
15
‘‘(5)
AGGREGATION
AND
OTHER
RULES
MADE
16
APPLICABLE.—
17
‘‘(A)
AGGREGATION
RULES.—All
employ-
18
ers
treated
as
a
single
employer
under
sub-
19
section
(b),
(c),
(m),
or
(o)
of
section
414
shall
20
be
treated
as
a
single
employer
for
purposes
of
21
this
section.
22
‘‘(B)
OTHER
RULES.—Rules
similar
to
the
23
rules
of
subsections
(c),
(d),
and
(e)
of
section
24
52
shall
apply.
1
‘‘(f)
CREDIT
MADE
AVAILABLE
TO
TAX-EXEMPT
ELI-
2
GIBLE
SMALL
EMPLOYERS.—
3
‘‘(1)
IN
GENERAL.—In
the case
of
a
tax-exempt
4
eligible
small
employer,
there
shall
be
treated
as
a
5
credit
allowable
under
subpart
C
(and
not
allowable
6
under
this
subpart)
the
lesser
of—
7
‘‘(A)
the
amount
of
the
credit
determined
8
under
this
section
with
respect
to
such
em-
9
ployer,
or
10
‘‘(B)
the
amount
of
the
payroll
taxes of
the
11
employer
during
the
calendar
year
in
which
the
12
taxable
year
begins.
13
‘‘(2)
TAX-EXEMPT
ELIGIBLE
SMALL
EM-
14
PLOYER.—For
purposes
of
this
section,
the
term
15
‘tax-exempt
eligible
small
employer’
means
an
eligi-
16
ble
small
employer
which
is
any
organization
de-
17
scribed
in
section
501(c)
which is
exempt
from
tax-
18
ation
under
section
501(a).
19
‘‘(3)
PAYROLL
TAXES.—For
purposes
of
this
20
subsection—
21
‘‘(A)
IN
GENERAL.—The
term
‘payroll
22
taxes’
means—
23
‘‘(i)
amounts
required
to
be
withheld
24
from
the
employees
of
the
tax-exempt
eligi-
25
ble
small
employer
under
section
3401(a),
1
‘‘(ii)
amounts
required
to
be
withheld
2
from
such
employees
under
section
3
3101(b),
and
4
‘‘(iii)
amounts
of
the
taxes
imposed
on
5
the
tax-exempt
eligible
small
employer
6
under
section
3111(b).
7
‘‘(B)
SPECIAL
RULE.—A
rule
similar
to
8
the
rule
of
section
24(d)(2)(C)
shall
apply
for
9
purposes
of
subparagraph
(A).
10
‘‘(g)
APPLICATION
OF
SECTION
FOR
CALENDAR
11 YEARS
2011,
2012,
AND
2013.—In
the
case
of
any
tax-
12 able
year
beginning
in
2011,
2012,
or
2013,
the
following
13
modifications
to
this
section
shall
apply in
determining
the
14
amount of
the
credit
under
subsection
(a):
15
‘‘(1)
NO
CREDIT
PERIOD
REQUIRED.—The
16
credit
shall
be
determined
without
regard
to
whether
17
the
taxable
year
is
in
a
credit
period
and
for
pur-
18
poses
of
applying
this
section
to
taxable
years
begin-
19
ning
after
2013,
no
credit
period
shall be
treated
as
20
beginning
with
a
taxable
year
beginning
before
21
2014.
22
‘‘(2)
AMOUNT
OF
CREDIT.—The
amount
of
the
23
credit
determined
under
subsection
(b)
shall
be
de-
24
termined—
1
‘‘(A)
by
substituting
‘35
percent
(25
per-
2
cent
in
the
case
of
a
tax-exempt
eligible
small
3
employer)’
for
‘50
percent
(35
percent
in
the
4
case
of
a
tax-exempt
eligible
small
employer)’,
5
‘‘(B)
by
reference
to
an
eligible
small
em-
6
ployer’s
nonelective
contributions
for
premiums
7
paid
for
health
insurance
coverage
(within
the
8
meaning
of
section
9832(b)(1))
of
an
employee,
9
and
10
‘‘(C)
by
substituting
for
the
average
pre-
11
mium
determined
under
subsection
(b)(2)
the
12
amount
the
Secretary
of
Health
and
Human
13
Services
determines
is
the
average
premium
for
14
the
small
group
market
in
the
State
in
which
15
the
employer
is
offering
health
insurance
cov-
16
erage
(or
for
such
area
within
the
State
as
is
17
specified
by
the
Secretary).
18
‘‘(3)
CONTRIBUTION
ARRANGEMENT.—An
ar-
19
rangement
shall
not
fail
to
meet
the
requirements
of
20
subsection
(d)(4)
solely
because
it
provides
for
the
21
offering
of
insurance
outside
of an
Exchange.
22
‘‘(h)
INSURANCE
DEFINITIONS.—Any
term
used
in
23 this
section
which
is
also used
in
the
Public
Health
Service
24 Act
or
subtitle
A
of title
I
of the
Patient
Protection
and
1
Affordable
Care
Act
shall
have
the
meaning
given
such
2 term
by
such Act
or
subtitle.
3
‘‘(i)
REGULATIONS.—The
Secretary
shall
prescribe
4 such
regulations
as
may
be
necessary
to carry
out
the
pro-
5
visions
of this
section,
including
regulations
to
prevent
the
6
avoidance
of the
2-year
limit
on
the
credit
period
through
7 the
use
of
successor
entities
and the
avoidance
of
the
limi-
8
tations
under
subsection
(c)
through
the
use
of
multiple
9
entities.’’.
10
(b)
CREDIT
TO
BE
PART
OF
GENERAL
BUSINESS
11
CREDIT.—Section
38(b)
of
the
Internal
Revenue
Code
of
12 1986
(relating
to
current
year
business
credit)
is
amended
13 by
striking
‘‘plus’’
at
the
end
of
paragraph
(34),
by
strik-
14 ing
the
period
at
the
end
of
paragraph
(35)
and
inserting
15 ‘‘,
plus’’,
and
by
inserting
after
paragraph
(35)
the
fol-
16
lowing:
17
‘‘(36)
the
small
employer
health
insurance
cred-
18
it
determined
under
section
45R.’’.
19
(c)
CREDIT
ALLOWED
AGAINST
ALTERNATIVE
MIN-
20
IMUM
TAX.—Section
38(c)(4)(B)
of
the
Internal
Revenue
21 Code
of
1986
(defining
specified
credits)
is
amended
by
22
redesignating
clauses
(vi),
(vii),
and
(viii)
as
clauses
(vii),
23
(viii),
and
(ix),
respectively,
and
by
inserting
after
clause
24 (v)
the
following
new
clause:
1
‘‘(vi)
the
credit
determined
under
sec-
2
tion
45R,’’.
3
(d)
DISALLOWANCE
OF
DEDUCTION
FOR
CERTAIN
4
EXPENSES
FOR
WHICH
CREDIT
ALLOWED.—
5
(1)
IN
GENERAL.—Section
280C of
the
Internal
6
Revenue
Code
of
1986
(relating
to
disallowance
of
7
deduction
for
certain
expenses
for
which
credit
al-
8
lowed),
as
amended
by
section
1401(b),
is
amended
9
by
adding
at
the
end
the
following
new
subsection:
10
‘‘(h)
CREDIT
FOR
EMPLOYEE
HEALTH
INSURANCE
11
EXPENSES
OF
SMALL
EMPLOYERS.—No
deduction
shall
12 be
allowed
for
that
portion
of
the
premiums
for
qualified
13
health
plans (as
defined
in
section
1301(a)
of
the
Patient
14
Protection
and
Affordable
Care
Act),
or
for
health
insur-
15 ance
coverage
in
the
case
of
taxable
years
beginning
in
16 2011,
2012,
or
2013,
paid
by
an
employer
which is
equal
17 to
the
amount
of
the
credit
determined
under
section
18
45R(a)
with
respect
to the
premiums.’’.
19
(2)
DEDUCTION
FOR
EXPIRING
CREDITS.—Sec-
20
tion
196(c)
of
such
Code
is
amended
by
striking
21
‘‘and’’
at
the
end
of
paragraph
(12),
by
striking
the
22
period
at
the
end
of
paragraph
(13)
and
inserting
‘‘,
23
and’’,
and
by
adding
at
the
end
the
following
new
24
paragraph:
1
‘‘(14)
the small
employer
health
insurance
cred-
2
it
determined
under section
45R(a).’’.
3
(e)
CLERICAL
AMENDMENT.—The
table
of
sections
4 for
subpart
D
of
part
IV
of
subchapter
A
of
chapter
1
5 of
the
Internal
Revenue
Code
of 1986
is
amended by
add-
6 ing
at
the end
the
following:
‘‘Sec. 45R.
Employee
health
insurance
expenses of
small
employers.’’.
7
(f)
EFFECTIVE
DATES.—
8
(1)
IN
GENERAL.—The
amendments
made
by
9
this
section
shall apply
to
amounts
paid
or
incurred
10
in
taxable years
beginning
after
December 31,
2010.
11
(2) MINIMUM
TAX.—The
amendments
made
by
12
subsection
(c)
shall
apply
to
credits
determined
13
under
section
45R of
the
Internal
Revenue
Code
of
14
1986
in taxable
years
beginning
after
December
31,
15
2010,
and to
carrybacks
of
such
credits.
See the IRS web page on Small Business Tax Credit.
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