Calculating Employees & Wages If you have any employees working less than 40 hours a week, you can count them as a fraction of an employee. Just take all the hours for employees you have to include (not counting overtime worked), divide by 2080, and you’ll get your “full time equivalent” (FTE) number – round down to a whole number.
For average wages, add up what you paid the employees you included above. Then divide by your FTE number – round down to a multiple of $1000.
Taking the Credit
Most companies will take the credit on their annual income tax return. The only exception is for tax-exempt businesses – see your tax advisor for more information.
For tax years 2010 to 2013, you can receive up to a 35% tax credit (25% max for tax-exempt companies). As of the 2014 tax year, the tax credit will be increased to 50% (35% for tax exempt companies). Your tax credit will be on a sliding scale. To receive the maximum credit, you’ll need to have 10 or fewer FTE employees and pay less than $25,000 on average per employee.
If you have 11+ FTE employees, your credit will be reduced by: Your credit * (# of FTE – 10) / 15
If your average wages > $25,000, your credit will be reduced by: Your credit * (ave wages – $25,000) / $25,000
And of course there are caps…insurance premiums counted cannot exceed your State’s “average premium for the small group market”. See the latest state figures on page 5-6 of this publication: http://www.irs.gov/pub/irs-pdf/i8941.pdf.