Small employers (less than 25 employees) who contribute to their employee’s health
insurance policy are entitled to a tax credit on that expense. So, in addition to
being a non-taxable form of compensation (see Non-Taxable Compensation below), health
insurance contributions made by an employer have the added benefit of savings from
Note: The average annual employee compensation for the
employer cannot exceed $50,000.
The tax credit percentage is determined by the average annual salary of the employees.
At $25,000, the tax credit is 35% of the contribution. For example, if the Johnsons
pay their nanny $25,000 and contribute $350 per month to her health insurance
policy, their tax credit would be $1,470 ($350 x 12 = $4,200 x .35 = $1,470).
Additional Notes: As the average annual salary increases
above $25,000, the tax credit percentage gradually decreases. In addition to the
sliding tax credit percentage, each state has created a ceiling for the contribution
portion of the formula based on that state’s average premium cost.
If you’d like an estimate of your tax credit – based on your state ceiling and your
tax credit percentage – just give us a call.