ACA Now

Statutory Text

SEC. 1421. CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES OF
SMALL BUSINESSES.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 (relating to business-related
credits) is amended by inserting after section 45Q the
following:
‘‘SEC. 45R. EMPLOYEE HEALTH INSURANCE EXPENSES OF SMALL EMPLOYERS.
‘‘(a) GENERAL RULE.—For purposes of section 38, in the case of
an eligible small employer, the small employer health insurance
credit determined under this section for any taxable year in the
credit period is the amount determined under subsection (b).
‘‘(b) HEALTH INSURANCE CREDIT AMOUNT.—Subject to subsection
(c), the amount determined under this subsection with respect
to any eligible small employer is equal to 50 percent (35 percent
in the case of a tax-exempt eligible small employer) of the lesser
of—
‘‘(1) the aggregate amount of nonelective contributions the
employer made on behalf of its employees during the taxable
year under the arrangement described in subsection (d)(4) for
premiums for qualified health plans offered by the employer to
its employees through an Exchange, or
‘‘(2) the aggregate amount of nonelective contributions
which the employer would have made during the taxable year
under the arrangement if each employee taken into account
under paragraph (1) had enrolled in a qualified health plan
which had a premium equal to the average premium (as determined
by the Secretary of Health and Human Services) for the
small group market in the rating area in which the employee
enrolls for coverage.
‘‘(c) PHASEOUT OF CREDIT AMOUNT BASED ON NUMBER OF EMPLOYEES
AND AVERAGE WAGES.—The amount of the credit determined
under subsection (b) without regard to this subsection shall
be reduced (but not below zero) by the sum of the following
amounts:
‘‘(1) Such amount multiplied by a fraction the numerator
of which is the total number of full-time equivalent employees
of the employer in excess of 10 and the denominator of which
is 15.
‘‘(2) Such amount multiplied by a fraction the numerator
of which is the average annual wages of the employer in excess
of the dollar amount in effect under subsection (d)(3)(B) and
the denominator of which is such dollar amount.
‘‘(d) ELIGIBLE SMALL EMPLOYER.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘eligible small employer’
means, with respect to any taxable year, an employer—
‘‘(A) which has no more than 25 full-time equivalent
employees for the taxable year,
‘‘(B) the average annual wages of which do not exceed
an amount equal to twice the dollar amount in effect under
paragraph (3)(B) for the taxable year, and
‘‘(C) which has in effect an arrangement described in
paragraph (4).
‘‘(2) FULL-TIME EQUIVALENT EMPLOYEES.— ‘‘(A) IN GENERAL.—The term ‘full-time equivalent employees’
means a number of employees equal to the number
determined by dividing—
‘‘(i) the total number of hours of service for which
wages were paid by the employer to employees during
the taxable year, by
‘‘(ii) 2,080.
Such number shall be rounded to the next lowest whole
number if not otherwise a whole number.
‘‘(B) EXCESS HOURS NOT COUNTED.—If an employee
works in excess of 2,080 hours of service during any taxable
year, such excess shall not be taken into account
under subparagraph (A).
‘‘(C) HOURS OF SERVICE.—The Secretary, in consultation
with the Secretary of Labor, shall prescribe such regulations,
rules, and guidance as may be necessary to determine
the hours of service of an employee, including rules
for the application of this paragraph to employees who are
not compensated on an hourly basis.
‘‘(3) AVERAGE ANNUAL WAGES.—
‘‘(A) IN GENERAL.—The average annual wages of an eligible
small employer for any taxable year is the amount
determined by dividing—
‘‘(i) the aggregate amount of wages which were
paid by the employer to employees during the taxable
year, by
‘‘(ii) the number of full-time equivalent employees
of the employee determined under paragraph (2) for
the taxable year.
Such amount shall be rounded to the next lowest multiple
of $1,000 if not otherwise such a multiple.
‘‘(B) DOLLAR AMOUNT.—[Replaced by section
10105(e)(1)] For purposes of paragraph (1)(B) and subsection
(c)(2)—
‘‘(i) 2010, 2011, 2012, AND 2013.—The dollar amount
in effect under this paragraph for taxable years beginning
in 2010, 2011, 2012, or 2013 is $25,000.
‘‘(ii) SUBSEQUENT YEARS.—In the case of a taxable
year beginning in a calendar year after 2013, the dollar
amount in effect under this paragraph shall be
equal to $25,000, multiplied by the cost-of-living adjustment
under section 1(f)(3) for the calendar year,
determined by substituting ‘calendar year 2012’ for
‘calendar year 1992’ in subparagraph (B) thereof.
‘‘(4) CONTRIBUTION ARRANGEMENT.—An arrangement is described
in this paragraph if it requires an eligible small employer
to make a nonelective contribution on behalf of each employee
who enrolls in a qualified health plan offered to employees
by the employer through an exchange in an amount equal
to a uniform percentage (not less than 50 percent) of the premium
cost of the qualified health plan.
‘‘(5) SEASONAL WORKER HOURS AND WAGES NOT COUNTED.— For purposes of this subsection—
‘‘(A) IN GENERAL.—The number of hours of service
worked by, and wages paid to, a seasonal worker of an employer
shall not be taken into account in determining the
full-time equivalent employees and average annual wages
of the employer unless the worker works for the employer
on more than 120 days during the taxable year.
‘‘(B) DEFINITION OF SEASONAL WORKER.—The term
‘seasonal worker’ means a worker who performs labor or
services on a seasonal basis as defined by the Secretary of
Labor, including workers covered by section 500.20(s)(1) of
title 29, Code of Federal Regulations and retail workers
employed exclusively during holiday seasons.
‘‘(e) OTHER RULES AND DEFINITIONS.—For purposes of this section—
‘‘(1) EMPLOYEE.—
‘‘(A) CERTAIN EMPLOYEES EXCLUDED.—The term ‘employee’
shall not include—
‘‘(i) an employee within the meaning of section
401(c)(1),
‘‘(ii) any 2-percent shareholder (as defined in section
1372(b)) of an eligible small business which is an
S corporation,
‘‘(iii) any 5-percent owner (as defined in section
416(i)(1)(B)(i)) of an eligible small business, or
‘‘(iv) any individual who bears any of the relationships
described in subparagraphs (A) through (G) of
section 152(d)(2) to, or is a dependent described in section
152(d)(2)(H) of, an individual described in clause
(i), (ii), or (iii).
‘‘(B) LEASED EMPLOYEES.—The term ‘employee’ shall
include a leased employee within the meaning of section
414(n).
‘‘(2) CREDIT PERIOD.—The term ‘credit period’ means, with
respect to any eligible small employer, the 2-consecutive-taxable
year period beginning with the 1st taxable year in which
the employer (or any predecessor) offers 1 or more qualified
health plans to its employees through an Exchange.
‘‘(3) NONELECTIVE CONTRIBUTION.—The term ‘nonelective
contribution’ means an employer contribution other than an
employer contribution pursuant to a salary reduction arrangement.
‘‘(4) WAGES.—The term ‘wages’ has the meaning given
such term by section 3121(a) (determined without regard to
any dollar limitation contained in such section).
‘‘(5) AGGREGATION AND OTHER RULES MADE APPLICABLE.—
‘‘(A) AGGREGATION RULES.—All employers treated as a
single employer under subsection (b), (c), (m), or (o) of section
414 shall be treated as a single employer for purposes
of this section.
‘‘(B) OTHER RULES.—Rules similar to the rules of subsections
(c), (d), and (e) of section 52 shall apply.
‘‘(f) CREDIT MADE AVAILABLE TO TAX-EXEMPT ELIGIBLE SMALL
EMPLOYERS.—
‘‘(1) IN GENERAL.—In the case of a tax-exempt eligible
small employer, there shall be treated as a credit allowable
under subpart C (and not allowable under this subpart) the
lesser of—
‘‘(A) the amount of the credit determined under this
section with respect to such employer, or
‘‘(B) the amount of the payroll taxes of the employer
during the calendar year in which the taxable year begins.
‘‘(2) TAX-EXEMPT ELIGIBLE SMALL EMPLOYER.—For purposes
of this section, the term ‘tax-exempt eligible small employer’
means an eligible small employer which is any organization described
in section 501(c) which is exempt from taxation under
section 501(a).
‘‘(3) PAYROLL TAXES.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘payroll taxes’ means—
‘‘(i) amounts required to be withheld from the employees
of the tax-exempt eligible small employer
under section 3401(a),
‘‘(ii) amounts required to be withheld from such
employees under section 3101(b), and
‘‘(iii) amounts of the taxes imposed on the tax-exempt
eligible small employer under section 3111(b).
‘‘(B) SPECIAL RULE.—A rule similar to the rule of section
24(d)(2)(C) shall apply for purposes of subparagraph
(A).
‘‘(g) APPLICATION OF SECTION FOR CALENDAR YEARS 2010, 2011,
2012, AND 2013.—[As revised by section 10105(e)(2)] In the case of
any taxable year beginning in 2010, 2011, 2012, or 2013, the following
modifications to this section shall apply in determining the
amount of the credit under subsection (a):
‘‘(1) NO CREDIT PERIOD REQUIRED.—The credit shall be determined
without regard to whether the taxable year is in a
credit period and for purposes of applying this section to taxable
years beginning after 2013, no credit period shall be treated
as beginning with a taxable year beginning before 2014.
‘‘(2) AMOUNT OF CREDIT.—The amount of the credit determined
under subsection (b) shall be determined—
‘‘(A) by substituting ‘35 percent (25 percent in the case
of a tax-exempt eligible small employer)’ for ‘50 percent (35
percent in the case of a tax-exempt eligible small employer)’,
‘‘(B) by reference to an eligible small employer’s nonelective
contributions for premiums paid for health insurance
coverage (within the meaning of section 9832(b)(1)) of
an employee, and
‘‘(C) by substituting for the average premium determined
under subsection (b)(2) the amount the Secretary of
Health and Human Services determines is the average
premium for the small group market in the State in which
the employer is offering health insurance coverage (or for
such area within the State as is specified by the Secretary).

‘‘(3) CONTRIBUTION ARRANGEMENT.—An arrangement shall
not fail to meet the requirements of subsection (d)(4) solely because
it provides for the offering of insurance outside of an Exchange.

‘‘(h) INSURANCE DEFINITIONS.—Any term used in this section
which is also used in the Public Health Service Act or subtitle A
of title I of the Patient Protection and Affordable Care Act shall
have the meaning given such term by such Act or subtitle.
‘‘(i) REGULATIONS.—The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section,
including regulations to prevent the avoidance of the 2-year
limit on the credit period through the use of successor entities and
the avoidance of the limitations under subsection (c) through the
use of multiple entities.’’.
(b) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT.—Section
38(b) of the Internal Revenue Code of 1986 (relating to current
year business credit) is amended by striking ‘‘plus’’ at the end of
paragraph (34), by striking the period at the end of paragraph (35)
and inserting ‘‘, plus’’, and by inserting after paragraph (35) the following:
‘‘(36) the small employer health insurance credit determined
under section 45R.’’.
(c) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.—
Section 38(c)(4)(B) of the Internal Revenue Code of 1986 (defining
specified credits) is amended by redesignating clauses (vi), (vii),
and (viii) as clauses (vii), (viii), and (ix), respectively, and by inserting
after clause (v) the following new clause:
‘‘(vi) the credit determined under section 45R,’’.
(d) DISALLOWANCE OF DEDUCTION FOR CERTAIN EXPENSES FOR
WHICH CREDIT ALLOWED.—
(1) IN GENERAL.—Section 280C of the Internal Revenue
Code of 1986 (relating to disallowance of deduction for certain
expenses for which credit allowed), as amended by section
1401(b), is amended by adding at the end the following new
subsection:
‘‘(h) CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES OF
SMALL EMPLOYERS.—[As revised by section 10105(e)(3)] No deduction
shall be allowed for that portion of the premiums for qualified
health plans (as defined in section 1301(a) of the Patient Protection
and Affordable Care Act), or for health insurance coverage in the
case of taxable years beginning in 2010, 2011, 2012, or 2013, paid
by an employer which is equal to the amount of the credit determined
under section 45R(a) with respect to the premiums.’’.
(2) DEDUCTION FOR EXPIRING CREDITS.—Section 196(c) of
such Code is amended by striking ‘‘and’’ at the end of paragraph
(12), by striking the period at the end of paragraph (13)
and inserting ‘‘, and’’, and by adding at the end the following
new paragraph:
‘‘(14) the small employer health insurance credit determined
under section 45R(a).’’.
(e) CLERICAL AMENDMENT.—The table of sections for subpart D
of part IV of subchapter A of chapter 1 of the Internal Revenue
Code of 1986 is amended by adding at the end the following:
‘‘Sec. 45R. Employee health insurance expenses of small employers.’’.
(f) EFFECTIVE DATES.—[As revised by section 10105(e)(4)]
(1) IN GENERAL.—The amendments made by this section
shall apply to amounts paid or incurred in taxable years beginning
after December 31, 2009.
(2) MINIMUM TAX.—The amendments made by subsection
(c) shall apply to credits determined under section 45R of the
Internal Revenue Code of 1986 in taxable years beginning after
December 31, 2009, and to carrybacks of such credits.