IRS Publishes 2010 Average Premiums by State to Help Small Employers Gain Access to the New Tax Credit for Health Care Contributions

On May 3, 2010, the Internal Revenue Service (IRS) issued Revenue Ruling 2010-13 (pdStethoscope on Billsf) to help implement the new Federal income tax credit for eligible small employers who make “nonelective” contributions toward their employees’ health care premiums.  The tax credit, codified in Section 45R of the Internal Revenue Code (IRC), was added as part of the Patient Protection and Affordable Care Act (PPACA), and is yet another tax mechanism designed to assist small employers in the difficult task of providing health coverage for their employees.

Section 45R is effective for taxable years beginning after December 31, 2009.  Prior to 2014, the amount of the employer credit is based on a percentage of the lesser of: (1) the amount of “nonelective” contributions paid by the small employer, or (2) the amount of “nonelective” contributions the employer would have paid if an employee were enrolled in a plan with a premium equal to the average premium for the small group market in the state where the insurance is provided.  Consequently, Revenue Ruling 2010-13 lists the average premiums for employee-only coverage and family coverage per state for 2010, as determined by the Secretary of Health and Human Services (HHS).  Alaska ($6,204 employee-only; $13,723 family), New Jersey ($5,607 employee-only; $13,521 family); New Hampshire ($5,519 employee-only; $13,624) and Connecticut ($5,419 employee-only; $13,484 family) top the list for the most expensive health premiums.  Idaho ($4,215 employee-only; $9,365 family) and Arkansas ($4,329 employee-only; $9,677 family) are the two states with the most affordable small-group premiums.

The IRS guidance noted that HHS may also determine that separate average premiums apply in 2010 for areas within a state – referred to as “sub-state areas” – because these areas have meaningfully higher premium rates.  However, the IRS stressed that “in no case will any such additional sub-state rates be lower than the applicable rate for each state that is set forth in th[e] Revenue Ruling.”

Photo credit:  Andriy Solovyov

Steven J. Friedman authored this entry.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.