The purpose of the tax credit is to encourage small businesses to offer health insurance benefits to lower income and moderate income employees on a cost-share basis, under the rationale that reducing health insurance costs for those employees will allow them to enroll in a health insurance plan for the first time or allow low-income employees to maintain existing health insurance coverage.
To be eligible to take the tax credit, businesses must have fewer than the equivalent of 25 full time employees whose average annual wages are below $50,000. In addition, the small businesses must pay 50 percent or more of their employees’ health care premiums.
Tax experts generally agree this tax credit is underutilized. Estimates indicate 375,000 California businesses are eligible for the credit, with a potential tax savings over $1.8 billion.
In 2014 the law will change to allow a tax credit for up to 50 percent of health insurance premiums paid for employees, but the expanded credit will come with a condition that the health insurance be purchased through the state’s Covered California program.
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