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Employer and Individual Tax Incentives to Offer He

Employer and Individual Tax Incentives to Offer Health Insurance

Table of Contents

Updated April 2011

For some time, some state health policymakers have teamed with fiscal experts to pioneer the approach of giving employers special state tax incentives to offer health insurance. 

The following are examples of small business, self-employed and related incentives identified.  There are a few instances in which a credit may only apply to enterprise zone business development scenarios, otherwise they are broad-based incentives, not geographically limited.

Note that, as a separate state tax law policy, many states impose some "premium tax" that is paid by some or all health insurers.  That material is available online as Provider and Industry Taxes and Fees.

NCSL also has a separate report on Health Savings Accounts (HSAs) and States.  These specially-structured accounts are exempt from all federal and most state taxation, but only apply to high-deductible health plans.


States with Employer/Employee Health Coverage Tax Incentives

State

Program Descriptions

Employer Credit

Employer Deduction

Individual Deduction

Alabama

Employer Tax Deduction: The Small Business Health Insurance Premium Deduction Enhancement Act took effect in January 2009; it allows small business owners (< 25 employees) to deduct 150% of the amount paid for employee premiums from state income taxes.

Individual Tax Deduction: The aforementioned Act also allows employees of small businesses who earn less than $50,000 annually to deduct 150% of their portion of premiums from state income taxes.

Small Business Health Care Help- CNN, 1/28/09.

  X X

Alaska

N/A

 

 

 

Arizona

Employer Tax Credit: Employers (between 2 and 25 eligible employees) are eligible for the Health Insurance Premium Tax Credit, which consists of the lesser of: $1,000 for each employee (single coverage); $3,000 for each employee (family coverage); or 50% of annual premium.
(Ch. 378 (H.B. 2177), Laws 2006; Sec. 20-224.05, A.R.S.)

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Arkansas

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

California

N/A

 

 

 

Colorado

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.
(Sec. 39-22-125, C.R.S., enacted in 2000).

 

 

X

Connecticut

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Delaware

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

District of Columbia

 

 

 

 

Florida

N/A

 

 

 

Georgia

Employer Tax Credit: Small employers (≤ 50 employees) offering high deductible health plans are eligible for a nonrefundable credit of $250 per year per enrolled employee.
(HB 977).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Hawaii

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Idaho

Employer Tax Credit: Employers qualify for tax credit for years when employment of new employees exceeds the average of employment of new employees in previous years. Employers receive $1,000 credit for new employees earning over $15.50/hour who are eligible for health coverage; employers receive $500 for each new employee who does not meet the aforementioned criteria.
(Idaho Code § 63-3029F).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Illinois

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Indiana

Employer Tax Credit: If an employer offers a Section 125 plan, it can receive $50 per employee in tax nonrefundable tax credit, up to $2,500 for two years.
(Ind. Public Law 218 of 2007, Enacted HB 1678).

X

 

 

Iowa

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Kansas

Employer Tax Credit: Small employers (≤ 50 employees) offering a small employer plan can receive $70 in refundable credit per month per enrolled employee (the amount offered decreases to $50 in the second year, and $35 in the third year, and ends after the third year).
(Ch. 118 (S.B. 257), Laws 2005;  Sec. 40-2246, K.S.A).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Kentucky

Individual Tax Deduction: When determining adjusted gross income, taxpayers may exclude amounts paid with after‐tax dollars for health insurance premiums.
(Ky. Rev. Stat. Ann. § 141. 010(10)(k)).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Louisiana

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Maine

Employer Tax Credit: Small employers (< 5 employees) offering a small employer plan are eligible for nonrefundable credit in the form of the lesser of 20% of dependent health benefits paid or $125 per year per enrolled low‐income employee with dependent coverage. Credit may not exceed 50% of state income otherwise due.

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Maryland

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Massachusetts

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Michigan

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.
(Mich. Stat. Ann. § 206. 510).

 

 

X

Minnesota

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Mississippi

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Missouri

Employer Tax Credit: Self‐employed individuals are eligible for a refundable tax credit equal to the portion of the taxpayer’s federal tax liability incurred by including health insurance payments in federally adjusted gross income.
(H.B. 818, Laws 2007; Sec. 143.119, RSMo).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Montana

Employer Tax Credit: Small employers (≤ 20 employees) carrying group health plans are eligible for nonrefundable tax credits of $25 per eligible employee per month if employer pays 100% of premium, reduced proportionally from 100% if the employer pays 50‐100% of premium. The refund may not be claimed for a period of more than 36 consecutive months.
(Ch. 595 (H.B. 667), Laws 2005).

Under the Insure Montana program, employers with between 2 and 9 eligible employees (who make less than $75,000 gross annually) may receive tax credit. There may be a waiting list for receiving tax credit.

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Nebraska

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Nevada

N/A

 

 

 

New Hampshire

N/A

 

 

 

New Jersey

N/A

 

 

 

New Mexico

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

New York

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

North Carolina

Employer Tax Credit: Small employers (≤ 25 eligible employees) providing health care coverage that exceeds state health plan minimum provisions are eligible for a nonrefundable credit of $250 per year per eligible enrolled employee, not to exceed the cost of providing benefits during the year. The tax credit expires January 1, 2010.
(Ch. 66 (S.B. 1741), Laws 2006; Sec. 105-129.16E, G.S.; Sec. 105-129.17, G.S.).

Employers creating jobs and claiming credit under the William S. Lee Quality jobs and Business Expansion Act must provide health insurance for the positions created for which credit is claimed.
(Ch. 252 (H.B. 2170), Laws 2006; Sec. 105-129.2A, G.S.).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

North Dakota

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Ohio

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Oklahoma

Employer Tax Credit: Qualified small employers (no more than 50 employees) offering a state‐certified basic health plan are eligible for a refundable tax credit of $15 per month per eligible employee, for two consecutive years.
(Okla. Stat. Tit. 68, § 3607).

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Oregon

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Pennsylvania

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Rhode Island

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

South Carolina

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.
(S. C. Code Ann. § 12-6-1140). (Sec. 12-6-3575, S.C. Code).

 

 

X

South Dakota

N/A

 

 

 

Tennessee

N/A

 

 

 

Texas

N/A

 

 

 

Utah

Employer Tax Credit: Employers offering health insurance coverage in an “Enterprise Zone” (as designated by the state) are eligible for refundable tax credits of $200 per insured employee for two consecutive years, if the employer pays at least 50% of premium costs; coverage of construction workers does not count toward credit, and the credit is not available for tax years beginning after June 2008.

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

X

 

X

Vermont

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Virginia

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Washington

N/A

 

 

 

West Virginia

Individual Tax Deduction: Individuals may deduct contributions to a Health Savings Account (HSA) from their state income taxes.

 

 

X

Wisconsin

N/A

 

 

 

Wyoming

N/A

 

 

 

Sources: Kaiser State Health Facts: State Tax Credits for Private Health Insurance: Targeting Individuals and Small Employers, January 2010 50-state table.
Tax Incentives to Promote Coverage: Credits, Deductions, Section 125 Plans.


Health Plan Coverage Under the Health Coverage Tax Credit Program

[The following is an edited excerpt of a report published by the Urban Institute in December 2006, written by Fouad Pervez and Stan Dorn.  The full 26-page report is available online, © Urban Institute. 

In August 2002, President Bush signed into law the Trade Act of 2002, creating Health Coverage Tax Credits (HCTCs), which subsidize 65 percent of health insurance premiums for certain early retirees receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC) and displaced workers who lost employment because of foreign trade.

By 2006, 40 states, which included 87 percent of potentially eligible individuals, had arranged state-qualified coverage for Health Coverage Tax Credit (HCTC) beneficiaries.

HCTCs are federal income tax credits that are fully refundable, which means that they are paid in full to all who qualify, including those who owe little or no federal income tax. For premium payments made in December 2002 and later months, beneficiaries have been able to receive HCTCs after filing their annual federal income tax forms. Beginning in August 2003, HCTCs were also available through advance payment directly to recipients' health plans over the course of the year.

Whether obtained in advance or after the end of the year, HCTCs may be used only for qualified health plans, which fall into two categories. First, automatically-qualified plans are available in every state, without any need for state action. These plans include COBRA coverage, individual coverage received by beneficiaries during at least their last 30 days before separation from work, and coverage through a spouse’s employer (if the employer pays less than 50 percent of the premium).

Second, state-qualified coverage includes, at state option, so-called "mini-COBRA" plans as well as other private health insurance arranged by a state that meets the following requirements:

  • The state-qualified plan may not charge HCTC beneficiaries higher premiums than it would charge other, similarly situated enrollees;
  • HCTC beneficiaries may not receive fewer benefits than the plan would provide to other, similarly situated enrollees;
  • For HCTC beneficiaries with at least three months of continuous coverage immediately before seeking to enroll, the plan must guarantee issue of a policy; and
  • For HCTC beneficiaries with such continuous coverage, the plan may not exclude coverage of preexisting conditions.

Although the target population is relatively small, this refundable, advanceable federal income tax credit—the first such credit targeting the uninsured since the early 1990s—offers a unique opportunity to garner practical lessons about how to design future tax credits aimed at much larger groups of uninsured.

By March 2006, 40 states, which included 87 percent of potentially eligible individuals, had arranged state-qualified coverage for Health Coverage Tax Credit (HCTC) beneficiaries. High-risk pools provided such coverage in 20 states. Medically underwritten coverage, plans with pure community rating, and plans with modified community rating were each available in nine states. Altogether, 280 state-qualified options were offered. In 36 states, more than one plan was available, and the median state included five options. However, in 26 states, all coverage had individual deductibles of $500 or more, including 12 states where all deductibles were $1,000 or more.

------------------

Sources: NCSL Fiscal Program research 5/08 and 4/09, Commerce Clearing House (CCH), Connecticut General Assembly staff.  Posted by the NCSL Health Program, Denver, CO.

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