To qualify for the federal small employer health insurance tax credit, an employer with 25 or fewer full-time equivalent employees generally must:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
California law ties the federal small employer tax credit to the state's SHOP exchange: an eligible employer with 25 or fewer full-time equivalent employees may claim the credit for contributions toward employee premiums only when coverage is purchased through Covered California for Small Business (CCSB). The credit is also conditioned on the employer paying a uniform percentage of premiums and on average annual wages staying below the statutory threshold. Purchasing outside CCSB, self-funding, or offering only limited-benefit lines does not satisfy the purchasing requirement, so the tax credit is unavailable in those cases.
Why the other options are wrong
- B) Self-insured employers assume their own claims risk and do not purchase coverage through CCSB. Because the credit requires coverage bought through the SHOP exchange, a self-funded plan cannot qualify.
- C) A stand-alone dental plan is not comprehensive medical coverage and does not meet the credit's requirement that the employer purchase qualified health plan coverage through CCSB.
- D) Buying from an out-of-state insurer does not satisfy the requirement that coverage be obtained through the California small business exchange; placement outside CCSB forfeits the credit.
Memory hook
Small employer credit = buy through CCSB or no credit. The exchange is the toll booth.