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 tax credits.

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.