The Internal Revenue Service recently enacted special relief that could allow many Iowa businesses to qualify for federal tax credits for providing health insurance to employees this year, according to a tax specialist with CliftonLarsonAllen LLP in West Des Moines.  

Since 2010, small employers have been able to claim a tax credit for providing group health insurance to their employees. Beginning in 2014, the credit rate increased, although eligibility narrowed significantly so that only employers that purchased group health coverage through the Small Business Health Options Program (SHOP) Marketplace could claim the credit, said Trevor Huisman, a tax manager with CliftonLarsonAllen’s West Des Moines office.

“Very few employers could claim this credit in 2014 because of the SHOP requirement,” Huisman said. “But for 2015, this opens the door again to most Iowa small employers, at least for a one-time opportunity.”

Businesses in 84 of Iowa’s 99 counties – including Polk, Warren and Dallas counties – lack access to group insurance through a SHOP exchange in 2015, and the IRS has recently issued special relief that allows these employers to claim the credit for employer-provided health insurance purchased outside the SHOP, the firm said in a tax letter. 

The credit is calculated as a percentage of employer-paid health insurance premiums. For tax years beginning in 2014 and after, the percentage is 50 percent for taxable employers and 35 percent for tax-exempt employers.  

It’s fully available to businesses with fewer than 10 employees that have an average annual wage per employee (excluding owners and their family members) under $25,000. A reduced credit is allowed as the number of employees increases from 10 to 25. The credit also phases down as the average annual wage per employee increases from $25,000 to $50,000.