The federal small employer health insurance tax credit, worth up to 50% of employer premium contributions, is available to employers with 25 or fewer full-time equivalent employees that:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The federal small employer health care tax credit — up to 50% of the employer's premium contribution (35% for eligible tax-exempt employers) — is available to employers with 25 or fewer full-time equivalent employees and average wages below the statutory threshold, but only when the employer purchases coverage through the Covered California for Small Business (CCSB) marketplace. Buying through CCSB is a condition of the credit in California. The credit phases out as firm size and wages rise. Employers should document both the CCSB purchase and employee eligibility because the credit is claimed on the employer's federal tax return, not through the employee's individual policy. Agents selling through CCSB must be certified to guide employers through the purchase correctly.
Why the other options are wrong
- B) Self-funded plans do not qualify for the premium-based small employer tax credit; the credit is tied to purchasing insured coverage through CCSB.
- C) The credit applies to comprehensive medical coverage, not to standalone dental policies.
- D) The credit is limited to small employers with 25 or fewer FTEs; employers over 100 employees are in the large group market.
Memory hook
25 or fewer employees plus buying through CCSB = the small employer credit door opens. Self-insure, and the credit walks away.