The recent health care reform legislation includes a new tax credit for eligible small employers that make nonelective contributions towards their employees’ health insurance premiums. Prior to 2014, the amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective health insurance contributions paid by the employer on behalf of its employees and (2) the amount of nonelective health insurance contributions the employer would have paid, if its employees had been enrolled in a plan with a premium equal to the average premium for the small group insurance market in the employer’s State (or area within the State) in which the health insurance coverage is offered.
To establish the amount in prong (2), IRS Revenue Ruling 2010-13 contains a chart which sets forth the average premium for the small group insurance market in each State for 2010. The Revenue Ruling also notes that there may be areas in some States with meaningfully higher premium rates. Consequently, for 2010, additional average premium rates may be provided by the Department of Health and Human Services for the small group insurance market in certain areas within the States. In no case will any such additional rate be lower than the rate for the State indicated in the Revenue Ruling.