Credit for Small Employer Health Insurance Premiums

published March, 2012

You may have received a letter from the CA EDD about an available credit for health insurance premiums paid.

Excluded from the credit are business owners, partners, and more than 2% shareholders, so most of us will not qualify for the credit.

When you do qualify, the credit is reported on Form 8941.

There is a three part eligibility test. First you have to have paid at least 50% of the premiums for health insurance coverage, and you have to pay uniformly (like 100% for everyone). Second, you have to have fewer than 25 “FTE” employees for the tax year, “FTE” is full-time equivalents. To calculate this, we take the hours of service divided by 2080 hours in a year, rounded down. Third, and this is the “killer” for most of my clients who offer health insurance, average annual wages for the year of less than $50,000 per FTE.

Health insurance does not include workers compensation insurance, or HSAs.

There is a reduction to the credit if your average is over $25k (but must still be under $50k), and there’s also an upper limit to the amount of coverage cost allowed in figuring the credit—in California the coverage limits are $4,790 for single and $11,493 for family coverage. Its $5,146 and $12,328 in New Mexico, and the lowest limits are $4,378 and $9,849 in Arkansas. Clearly people in Arkansas are healthier than they are in New Mexico and California!

See for more information.