A small employer with 20 employees offers health coverage through Covered California for Small Business (CCSB). Which statement correctly describes the federal small employer health insurance tax credit?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The federal small employer health insurance tax credit applies to employers with 25 or fewer full-time-equivalent employees (and average wages below the statutory threshold) who purchase coverage through a Small Business Health Options Program (SHOP) marketplace. In California, the SHOP is Covered California for Small Business (CCSB). The credit is claimed by the employer, not paid to employees, and the tax benefit reduces the employer's federal income tax liability. Purchasing through CCSB is what makes California small employers eligible, which is why the credit is tested together with the exchange rules under AH-III.B.3.
Why the other options are wrong
- B) The credit is a small-employer benefit; groups of 101 or more are large groups that do not qualify for the SHOP tax credit.
- C) The credit belongs to the employer, who claims it on the federal return; it is not paid to employees and is not taxable income to them.
- D) The credit requires purchase through a SHOP exchange (CCSB in California); buying outside the exchange disqualifies the employer.
Memory hook
Credit needs three things: 25 or fewer employees, CCSB purchase, and it's the employer's — not the staff's.