A California small employer with 20 employees may qualify for the federal small employer health insurance tax credit only if it:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Businesses with 25 or fewer full-time equivalent employees may be eligible for the federal small employer health insurance tax credit, but only if they purchase health insurance through Covered California for Small Business (CCSB), the state's small-business exchange. The credit is designed to make affordable group coverage attainable for very small employers, and the purchasing channel is a condition of eligibility. This rule is part of the small group health insurance material in AH-III.B.3, which emphasizes the CCSB purchasing requirement as a precondition for the federal credit, so an employer that buys outside the Exchange forfeits the credit.
Why the other options are wrong
- B) Self-insuring does not involve purchasing a qualified plan through CCSB and does not generate the federal tax credit.
- C) Coverage bought directly from an insurer outside the Exchange does not satisfy the CCSB purchasing requirement for the credit.
- D) Offering only an HSA is not a health plan purchase through CCSB and does not qualify for the small employer credit.
Memory hook
25 or fewer employees plus CCSB equals the small employer tax credit.