n-10-82.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III - Administrative, Procedural, and Miscellaneous

Section 45R – Tax Credit for Employee Health Insurance Expenses of Small Employers

Notice 2010-82

I. PURPOSE AND BACKGROUND

Section 45R of the Internal Revenue Code (Code) offers a tax credit to certain
small employers that provide health insurance coverage to their employees. The credit
is available for taxable years beginning after December 31, 2009. Both taxable
employers and employers that are organizations described in § 501(c) and exempt from
tax under § 501(a) (tax-exempt employers) may be eligible for the § 45R credit.
Employers that satisfy the requirements for the credit are referred to in this notice as
“eligible small employers.”
Notice 2010-44, 2010-22 I.R.B. 717, provides guidance on § 45R as in effect for
taxable years beginning before January 1, 2014, including transition relief for taxable
years beginning in 2010 with respect to the requirements for a qualifying arrangement
under § 45R. This notice expands on the guidance provided in Notice 2010-44 and
provides guidance on additional issues relating to the small employer tax credit.
II. ISSUES RELATING TO EMPLOYER’S ELIGIBILITY FOR THE CREDIT
To be an eligible small employer: (1) the employer must have fewer than 25 full-
time equivalent employees (FTEs) for the taxable year; (2) the average annual wages of
its employees for the year must be less than $50,000 per FTE; and (3) the employer
must maintain a “qualifying arrangement.” In general, a qualifying arrangement is an
arrangement under which the employer pays premiums for each employee enrolled in

2
health insurance coverage offered by the employer in an amount equal to a uniform
percentage (not less than 50 percent) of the premium cost of the coverage.
A. Tax-Exempt Employers Not Described in § 501(c) and Exempt Under § 501(a)
Section 45R(f)(1) provides that the credit is available to a tax-exempt eligible
small employer, defined in § 45R(f)(2) as "any organization described in § 501(c) which
is exempt from taxation under § 501(a)." Tax-exempt organizations that are not both
described in § 501(c) and exempt from taxation under § 501(a) are not eligible to claim
the credit. However, a § 521 farmers cooperative that is subject to tax under § 1381 is
eligible to claim the credit as a taxable employer, if it otherwise meets the definition of
an eligible small employer.
B. Employers Not Engaged in a Trade or Business
The statute does not require that, in order for an employer to be an eligible small
employer, the employees of the employer must be performing services in a trade or
business. Thus, an employer that otherwise meets the requirements for the credit
under § 45R for a taxable year beginning before January 1, 2014 does not fail to be an
eligible small employer merely because the employees of the employer are not
performing services in a trade or business. For example, a household employer that
otherwise satisfies the requirements of § 45R is eligible for the credit.
C. Employers Located Outside the United States
For taxable years 2010 through 2013, an eligible small employer's credit is based
on premiums paid for health insurance coverage offered by a health insurance issuer,
as described in § 9832(b)(1). Section 9832(b)(2) requires that an insurer be licensed to
engage in the business of insurance in a State and that the insurer is subject to State

3
law regulating insurance. For purposes of § 9832(b)(2) and § 45R, "State" is defined in
§ 7701(a)(10), and means the 50 States plus the District of Columbia. Therefore, an
eligible small employer located outside the United States (including an employer located
in a U.S. territory), which has income effectively connected with the conduct of a trade
or business in the United States, may claim the § 45R credit only if it pays premiums for
an employee's health insurance coverage that is issued in and regulated by one of the
50 States or the District of Columbia. Similarly, a tax-exempt eligible small employer
located outside the United States (including an employer located in a U.S. territory)
would also be required to pay premiums for an employee's health insurance coverage
that is issued in and regulated by one of the 50 States or the District of Columbia in
order to obtain the refundable credit described in § 45R(f).
III. OTHER ISSUES RELATING TO ELIGIBILITY FOR THE CREDIT
A. Determining Employees Taken Into Account - Spouses

Employees who perform services for the employer during the taxable year are
taken into account in determining the employer’s FTEs, average wages, and premiums
paid, with certain individuals excluded and with employees of certain related employers
included. See section II.B of Notice 2010-44. Sole proprietors, partners in a
partnership, shareholders owning more than two percent of the stock in an S
corporation, and any owners of more than five percent of other businesses are not
taken into account as employees for purposes of the credit. Family members of these
owners and partners are also not taken into account as employees.
The definition of “family members” for purposes of § 45R does not specifically
refer to spouses. However, spouses of certain business owners are excluded from

4
being taken into account as employees by operation of the ownership attribution rules in
the Code. Therefore, the following individuals also are not taken into account as
employees for purposes of § 45R: (1) the employee-spouse of a shareholder owning
more than two percent of the stock of an S corporation; (2) the employee-spouse of an
owner of more than five percent of a business; (3) the employee-spouse of a partner
owning more than a five percent interest in a partnership; and (4) the employee-spouse
of a sole proprietor. See
§§ 45R(e)(1)(A); 1372(b), 318, 416(i)(1)(B)(i).
B. Determining Employees Taken Into Account – Leased Employees and Others
Leased employees (as defined in § 414(n)) are counted in computing an
employer’s FTEs and average annual wages. See § 45R(e)(1)(B). However, no
provision of § 45R supports attributing to the service recipient the leasing organization’s
payment of premiums. Therefore, premiums for health insurance coverage paid by a
leasing organization for a leased employee are not taken into account by the service
recipient in computing the service recipient’s § 45R credit.
Unless specifically excluded, all employees of the employer during the year for
which the credit is being claimed are taken into account in computing an employer’s
FTEs and annual average wages under § 45R, including, for example, former
employees who terminated employment during the year for which the credit is being
claimed, employees covered under a collective bargaining agreement, and employees
who do not enroll in their employer’s health insurance plan (whether or not they are
covered under another health insurance plan).
A minister performing services in the exercise of his or her ministry is treated as
self-employed for Social Security and Medicare tax purposes. See §§ 1402(c)(2)(D)

5
and 3121(b)(8)(A). However, for other tax purposes, including § 45R, whether a
minister is an employee or self-employed is determined under the common law test for
determining worker status. If, under the common law test, a minister is self-employed,
the minister is not taken into account in determining an employer’s FTEs and premiums
paid because § 45R(e)(A)(i) excludes a self-employed individual from the term
"employee" for purposes of the credit. If, under the common law test, the minister is an
employee, the minister is taken into account in determining an employer’s FTEs and
premiums paid by the employer for the minister's health insurance coverage can be
taken into account in computing the credit, subject to limitations on the credit. (Note
that, under § 45R(f)(1)(B), a tax-exempt employer's § 45R credit cannot exceed the
total of the tax-exempt eligible small employer’s income tax and Medicare tax
withholding and its Medicare tax liability for the year). Because compensation of a
minister performing services in the exercise of his or her ministry is not subject to Social
Security or Medicare tax under the Federal Insurance Contributions Act (FICA), a
minister has no wages as defined under § 3121(a) for purposes of computing an
employer’s average annual wages.
C. Determining Average Annual Wages, Number of Hours Worked, and Number of
FTEs
All wages (as defined under § 3121(a) but without regard to the wage base
limitation under § 3121(a)) paid (including overtime pay) are taken into account in
computing an employer’s average annual wages. Thus, for example, if an employee
works more than 2,080 hours in a year, all wages paid to the employee, including

6
wages for the hours in excess of 2,080, are taken into account in computing the
employer’s average annual wages.
Notice 2010-44 provides three methods that employers are permitted to use for
calculating employees’ hours of service for the taxable year: (1) counting actual hours
worked; (2) using a days-worked equivalency; or (3) using a weeks-worked equivalency.
Employers need not use the same method for all employees, but may apply different
methods for different classifications of employees, if the classifications are reasonable
and consistently applied. For example, an employer may use the actual hours worked
method for all hourly employees and the weeks-worked equivalency method for all
salaried employees. In addition, employers may change the method for calculating
employees’ hours of service for each taxable year.
As explained in Notice 2010-44, the number of an employer’s FTEs is
determined by dividing the total hours of service (but not more than 2,080 hours of
service for any employee) by 2,080 hours. See § 45R(d)(2). The result, if not a whole
number, is then rounded to the next lowest whole number. However, if, after dividing
the total hours of service by 2,080, the resulting number is less than one, the employer
rounds up to one FTE.
D. HSAs and Self-Insured Plans, including HRAs and FSAs, are not Qualifying
Arrangements
An employer’s premium payments are not taken into account for purposes of the
§ 45R credit unless they are paid for health insurance coverage under a qualifying
arrangement. A qualifying arrangement is an arrangement under which the employer
pays premiums for each employee enrolled in health insurance coverage offered by the

7
employer in an amount equal to a uniform percentage (not less than 50 percent) of the
premium cost of the coverage. Under § 45R(g)(2)(B), for years prior to 2014, health
insurance coverage for purposes of the credit is defined in § 9832(b)(1). Among the
requirements of § 9832(b)(1) is that the coverage be offered by a health insurance
issuer. A health insurance issuer is defined in § 9832(b)(2) as an entity licensed to
engage in the business of insurance in a State and which is subject to State law
regulating insurance. See
§ 9832(b)(1) and section II.G of Notice 2010-44. Thus, an
employer’s self-insured plan is not health insurance coverage for purposes of the credit
and any employer contribution to such coverage is not a qualifying arrangement for
purposes of § 45R.
Because Health Reimbursement Arrangements (HRAs) and health Flexible
Spending Arrangements (health FSAs) are self-insured plans, these arrangements are
not health insurance coverage. Health Savings Accounts (HSAs) (defined in §
223(d)(1)) are also not health insurance coverage. Thus, employer contributions to
HRAs, health FSAs, or HSAs are not taken into account for purposes of the § 45R
credit.
E. Multiemployer Health and Welfare Plans Providing Health Insurance Coverage
For purposes of the § 45R credit, contributions by an employer to a
multiemployer plan that are used to pay premiums for health insurance coverage for
employees covered by the multiemployer plan are treated as payment of health
insurance premiums by the employer. Moreover, if 100 percent of the cost of coverage
under the multiemployer plan is paid from nonelective employer contributions, and not
by employees, each employer in the multiemployer plan is considered to be contributing

8
a uniform percentage of 100 percent of the premium on behalf of each employee
covered by the plan. Accordingly, an employer that is otherwise an eligible small
employer and that contributes to a multiemployer plan that provides for insured health
care coverage does not fail to satisfy the requirements for the § 45R credit merely
because the insurance premiums are paid by the plan and not directly paid by the
employer. In addition, the employer does not fail to be considered to be contributing a
uniform percentage of the premium for each employee if 100 percent of the cost of
coverage for all employees covered by the plan is paid through employer nonelective
contributions. However, self-insured health coverage provided through a multiemployer
plan is not health insurance coverage provided under a qualifying arrangement under §
45R.
Multiemployer plans may provide welfare-type benefits in addition to health
insurance, such as life insurance or short- or long-term disability benefits. Only the
employer contributions to the multiemployer plan that are used to purchase health
insurance for an employee are permitted to be taken into account in determining
premium payments by the employer under § 45R. Thus, if amounts are contributed to a
multiemployer plan for health insurance coverage and also for other benefits, the
employer must allocate contributions among the benefits provided, and only the amount
allocable to health insurance premiums applies in calculating the § 45R credit. An
employer contributing to a multiemployer plan is permitted to rely on information
provided by the plan to determine the amount of its contribution that is used to purchase
health insurance.

9
F. Qualifying Arrangements – Church Welfare Benefit Plans
As noted above, for taxable years beginning prior to 2014, health insurance
coverage for purposes of the credit means benefits consisting of medical care offered
by a health insurance issuer, which is an entity licensed to engage in the business of
insurance in a State, and which is subject to State law regulating insurance. See
§§
9832(b)(1) and 9832(b)(2). The Church Plan Parity and Entanglement Prevention Act
of 1999 (CPPEPA), Pub. L. No. 106-244, clarifies the status of church welfare benefit
plans providing medical benefits in the context of State insurance laws. Section 2(d) of
CPPEPA provides that “[n]otwithstanding any other provision of this section, for
purposes of enforcing provisions of State insurance laws that apply to a church plan that
is a welfare plan, the church plan shall be subject to State enforcement as if the church
plan were an insurer licensed by the State.” Thus, under § 2(d) of CPPEPA, a church
welfare benefit plan is subject to State insurance law enforcement as if it were licensed
as an insurance company. Section 2(e) of the CPPEPA provides that § 2 generally
shall not be construed as recharacterizing the status, or modifying or affecting the
rights, of any plan participant or beneficiary.
Pursuant to this notice, because a church welfare benefit plan is subject to State
insurance law enforcement as if it were licensed under State law, it will be treated as
satisfying the requirements for health insurance coverage for purposes of the § 45R
credit. Therefore, for these purposes, an arrangement under which a small church
employer pays premiums for employees who receive medical care provided through a
church welfare benefit plan may be a qualifying arrangement and a small church
employer paying for employees’ medical coverage under such a plan may be a tax-

10
exempt eligible small employer. This treatment of church plan coverage as health
insurance coverage applies solely for purposes of § 45R, which applies to the tax
treatment of the employer but does not affect the rights of plan participants and
beneficiaries.
G. Uniformity Requirement
To receive the tax credit, an eligible small employer must pay a uniform
percentage (not less than 50 percent) of the premium for each employee enrolled in
health insurance coverage offered by the employer. See § 45R(d)(4). Section V of
Notice 2010-44 provides transition relief in applying the uniformity requirement for
taxable years beginning in 2010. This section provides rules for applying the uniformity
requirement in taxable years beginning after December 31, 2009 and prior to 2014. For
taxable years beginning in 2010, an employer may satisfy the uniformity requirement
either by meeting the requirements of this section or by meeting the requirements of
Section V of Notice 2010-44.
1. Terminology Used in this Notice
For purposes of this notice:
(a) Each benefits package is considered a separate health insurance plan. For
example, an employer offers a single health insurance plan if the employer makes only
one benefits package available to its employees.
(b) A health insurer that charges a uniform premium for each of the employer’s
employees or that charges a single aggregate premium for the group of covered
employees that the employer may then divide by the number of covered employees to
determine the uniform premium is referred to as using “composite billing.”

11
(c) A health insurer that lists a separate premium for each employee based on
the age of the employee or other factors is referred to as using “list billing.”
(d) A “tier” of coverage is coverage under a benefits package that varies only by
the number of individuals covered. For example, self-only coverage, self plus one
coverage, and family coverage would constitute three separate tiers of coverage.
(e) The “employer-computed composite rate” for a tier of coverage is the
average rate determined by adding the premiums for that tier of coverage for all
employees eligible to participate in the employer’s health insurance plan (whether or not
they actually receive coverage under the plan or under that tier of coverage) and
dividing by the total number of such eligible employees.
2. Employers Offering One Plan. An employer that offers a single health insurance
plan will satisfy the uniformity requirement of section 45R if it satisfies the requirements
of this subsection G.2. An employer whose health insurer uses composite billing must
satisfy the requirements of paragraph (a) of this subsection G.2 with respect to self-only
coverage under the plan. An employer whose health insurer uses list billing must
satisfy the requirements of paragraph (c) of this subsection G.2 with respect to self-only
coverage under the plan. If an employer offers a more expensive tier of coverage than
single coverage, it must also satisfy paragraph (b) of this subsection G.2 with respect to
each such more expensive tier if its insurer uses composite billing and paragraph (d) of
this subsection G.2 if its insurer uses list billing.
(a).Employers offering one plan - Self-only coverage – composite billing. An
employer satisfies the requirements of this paragraph (a) if it pays the same amount

12
toward the premium for each employee receiving self-only coverage under the plan, so
long as that amount is equal to at least 50 percent of the self-only premium.
(b) Employers offering one plan -other tiers of coverage – composite billing. If
an employer offers a tier of coverage that is more expensive than self-only coverage,
the employer satisfies the requirements of this paragraph (b) if it pays an amount for
each employee enrolled in that more expensive tier of coverage that is the same for all
employees and that is no less than the amount that the employer would have
contributed toward self-only coverage for that employee. Alternatively, an employer
that offers a tier of coverage that is more expensive than self-only coverage may satisfy
the requirements of this paragraph (b) by meeting the requirements of paragraph (a) of
this subsection G.2 for each tier of coverage that it offers.
(c) Employers offering one plan -self-only coverage – list billing. An employer
satisfies the requirements of this paragraph (c) if the employer either: (i) pays toward
the premium an amount equal to a uniform percentage (not less than 50 percent) of the
premium charged for each employee or (ii) converts the individual premiums for self-
only coverage into an employer-computed composite rate for self-only coverage, and, if
an employee contribution is required, each employee who receives coverage under the
plan pays a uniform amount toward the self-only premium that is no more than 50
percent of the employer-computed composite rate for self-only coverage.
(d) Employers offering one plan -other tiers of coverage – list billing. If an
employer offers a tier of coverage that is more expensive than self-only coverage, the
employer satisfies the requirements of this paragraph (d) by paying toward the
premium for each employee covered under that tier of coverage an amount equal to the

13
amount that the employer would have contributed with respect to that employee for self-
only coverage, calculated either based upon the actual premium that would have been
charged by the insurer for that employee for self-only coverage or based upon the
employer-computed composite rate for self-only coverage. Alternatively, an employer
that offers a tier of coverage that is more expensive than self-only coverage may satisfy
the requirements of this paragraph (d) by meeting the requirements of paragraph (b) of
this subsection G.2 for each tier of coverage that it offers and substituting the employer-
computed composite rate for that tier of coverage for the employer-computed composite
rate for self-only coverage.
3. Employers Offering More than One Plan. If an employer offers more than one
health insurance plan (i.e., more than one benefit package), the employer may satisfy
the uniformity requirement in either of two ways:
(a) The employer’s payments toward the premium with respect to each plan for
which the employer is claiming the credit satisfy subsection G.2 on a plan-by-plan basis.
The amounts or percentages of premium paid by the employer for each plan need not
be identical, so long as the payments with respect to each plan satisfy subsection G.2,
or
(b) If the requirements of subsection G.4 are satisfied, the employer may
designate a “reference plan” and make employer contributions in accordance with the
following requirements:
(i) The employer determines a level of employer contributions for each employee
such that, if all eligible employees enrolled in the reference plan, the contributions would
satisfy subsection G.2.

14
(ii) The employer allows each employee to apply the amount determined under (i)
of this paragraph (b) either toward the reference plan or toward the cost of coverage
under any of the other available plans.
4. Anti-abuse rule for employers offering more than one plan and using reference
plan. The requirements of this subsection G.4 are satisfied if the self-only composite
rate for the reference plan is at least 66 percent of the self-only composite rate for each
non-reference plan with respect to which the employer claims the credit. For purposes
of this paragraph, the self-only composite rate is, in the case of a plan with composite
billing, the rate actually charged by the health insurance issuer for self-only coverage,
and, in the case of a plan with list billing, the employer-computed composite rate for
self-only coverage.
Example 1
. (i) In 2011, Employer offers one health insurance plan, Plan A. The
premiums for Plan A are $5,000 per year for self-only coverage, and $10,000 for family
coverage. Employees can elect self-only or family coverage under Plan A.

(ii) Employer pays $3,000 (60% of the premium) toward self-only coverage under
Plan A and $6,000 (60% of the premium) toward family coverage under Plan A.

(iii) Employer’s contributions of 60% of the premium for each tier of coverage
satisfy the uniformity requirement in § 45R(d)(4).

Example 2
. (i) Same facts as Example 1, except that Employer pays $3,000
(60% of the premium) for each employee electing self-only coverage under Plan A and
pays $3,000 (30% of the premium) for each employee electing family coverage under
Plan A.

(ii) Employer’s contributions of 60% of the premium toward self-only coverage
and the same dollar amount toward the premium for family coverage satisfy the
uniformity requirement in § 45R(d)(4).

Example 3
. (i) In 2011, Employer offers two health insurance plans, Plan A and
Plan B, both of which use composite billing. The premiums for Plan A are $5,000 per
year for self-only coverage and $10,000 for family coverage. The premiums for Plan B
are $7,000 per year for self-only coverage and $13,000 for family coverage. Employees
can elect self-only or family coverage under either Plan A or Plan B.

15

(ii) Employer pays $3,000 (60% of the premium) for each employee electing self-
only coverage under Plan A, $3,000 (30% of the premium) for each employee electing
family coverage under Plan A, $3,500 (50% of the premium) for each employee electing
self-only coverage under Plan B, and $3,500 (27% of the premium) for each employee
electing family coverage under Plan B.

(ii) Employer’s contributions of 60% of the premiums for self-only coverage and
the same dollar amounts toward the premium for family coverage under Plan A, and of
50% of the premium for self-only of coverage and the same dollar amount toward the
premium for family coverage under Plan B, satisfy the uniformity rule on a plan-by-plan
basis; therefore the employer’s contributions to both plans satisfy the uniformity
requirement in § 45R(d)(4).

Example 4
. (i) Same facts as Example 3, except that Employer designates Plan
A as the reference plan. Employer pays $2,500 (50% of the premium) for each
employee electing self-only coverage under Plan A and pays $2,500 of the premium for
each employee electing family coverage under Plan A or either self-only or family
coverage under Plan B.

(iii) The self-only composite rate for Plan A ($5,000) is greater than 66% of the
self-only composite rate for Plan B ($7,000). ($5,000 ÷ $7,000 = 71%).

(iv) Employer’s contribution of $2,500 toward the premium of each employee
enrolled under Plan A or Plan B satisfies the uniformity requirement in § 45R(d)(4).

Example 5
. (i) Same facts as Example 4, except that the self-only composite rate
for Plan B is $8,000.

(ii) The self-only composite rate for Plan A ($5,000) is less than 66% of the self-
only composite rate for Plan B ($8,000). ($5,000 ÷ $8,000 = 63%). Accordingly,
Employer may not designate Plan A as the reference plan. The Employer’s contribution
of $2,500 toward the premium of each employee enrolled under Plan B fails to satisfy
the uniformity requirement in § 45R(d)(4) and the Employer is not eligible for a credit
with respect to the premiums paid for Plan B. However, the Employer’s contribution of
$2,500 toward the premium of each employee enrolled under Plan A satisfies the
uniformity requirement in § 45R(d)(4) and, accordingly, if the other requirements of
section 45R are satisfied, the Employer may receive a credit with respect to its
contributions to Plan A.

Example 6
. (i) For the 2011 taxable year, Employer receives a list billing
premium quote from Health Insurance Issuer W for health insurance coverage for each
of Employer’s four employees.

16
(ii) For Employee L, age 20, the self-only premium is $3,000 per year, and the
family premium is $8,000. For Employees M, N and O, each age, 40, the self-only
premium is $5,000 per year and the family premium is $10,000.

(iii) The total self-only premium for the four employees is $18,000 ($3,000 + (3 x
5,000)). Employer calculates a employer-computed composite self-only rate of $4,500
($18,000 ÷ 4).

(iii) Employer offers to make contributions such that each employee would need
to pay $2,000 of the premium for self-only coverage. Under this arrangement, Employer
would contribute $1,000 toward self-only coverage for L and $3,000 toward self-only
coverage for M, N, and O. In the event an employee elects family coverage, Employer
would make the same contribution ($1,000 for L or $3,000 for M, N, or O) toward the
family premium.

(v) Employer satisfies the uniformity requirement in § 45R(d)(4), because it
offers and makes contributions based on an employer-calculated composite self-only
rate such that, to receive self-only coverage, each employee must pay a uniform
amount which is not more than 50 percent of the composite rate, and it allows
employees to use the same employer contributions toward family coverage.

Example 7
. (i) Same facts as Example 6, except that Employer calculates a
employer-computed composite family rate of $9,500 (($8,000 + (3 x 10,000)) ÷ 4) and
requires each employee to pay $4,000 of the premium for family coverage.

(ii) Employer satisfies the uniformity requirement in § 45R(d)(4), because it
offers and makes contributions based on a calculated self-only and family rate such
that, to receive either self-only or family coverage, each employee must pay a uniform
amount which is not more than 50 percent of the composite rate for coverage of that
tier.

Example 8
. (i) Same facts as Example 6, except that Employer also receives a
list billing premium quote from Health Insurance Issuer X for health insurance coverage
for each of Employer’s four employees, in addition to the list billing premium quote from
Health Insurance Issuer W.

(ii) Health Insurance Issuer X’s quote for Employee L, age 20, is $4,000 per year
for self-only coverage or $12,000 per year for family coverage. For Employees M, N and
O, each age 40, the premium is $7,000 per year for self-only coverage or $15,000 per
year for family coverage.

(iii) The total self-only premium under Plan X is $25,000 ($4,000 + (3 x 7,000).
The employer-computed composite self-only rate is $6,250 ($25,000 ÷ 4).

(iv) Employer designates Health Insurance Issuer W’s health care coverage as
the reference plan.

17

(v) Employer offers to make contributions based on the employer-calculated
composite premium for the reference plan (Plan W) such that each employee has to
contribute $2,000 to receive self-only coverage through Plan W. Under this
arrangement, Employer would contribute $1,000 toward self-only coverage for L and
$3,000 toward self-only coverage for M, N, and O. In the event an employee elects
family coverage through Plan W or either self-only or family coverage through Plan X,
Employer would make the same contribution ($1,000 for L or $3,000 for M, N, or O)
toward that coverage.

(vi) The self-only composite rate for Plan W ($5,000) is at least 66% of the self-
only composite rate for Plan X ($6,250). ($5,000 ÷ $6,250 = 80%).

(vii) Employer satisfies the uniformity requirement in § 45R(d)(4), because it
offers and makes contributions based on the employer-calculated composite self-only
premium for the Plan W reference plan such that, in order to receive self-only coverage,
each employee must pay a uniform amount which is not more than 50 percent of the
self-only composite premium of the reference plan; it allows employees to use the same
employer contributions toward family coverage in the reference plan or coverage
through another plans; and the self-only composite rate for the reference plan is at least
66% of the self-only composite rate for the non-reference plan.

Section 45R does not impose a coverage requirement (although, other provisions of the
Code, such as § 105(h), may impose coverage requirements on the health plan).
IV. ISSUES RELATING TO CALCULATING THE CREDIT
A. Small Group Market - Employees in Multiple States
Under § 45R(b)(2), the credit is limited by the average premium for the small
group market in the State (or area within the State) in which the employee enrolls for
coverage. See
Rev. Rul. 2010-13, 2010-13 I.R.B. 691, for average State premiums for
the taxable year beginning after December 31, 2009. If an employer has employees in
multiple States, the employer applies the average premium for the small group market
in the State (or area within the State) separately for each employee using the average
State premium for the State in which the employee works.
B. Application of Average Premium Cap

18
Under § 45R(b)(2) and 45R(g)(2)(c), the amount of an employer’s premium
payments that are taken into account in calculating the credit is limited to the premium
payments the employer would have made under the same arrangement if the average
premium for the small group market in the State (or an area within the State) in which
the employer offers coverage were substituted for the actual premium. See Notice
2010-44 for additional detail. Rev. Rul. 2010-13, 2010-21 IRB 691 lists the applicable
average premium for self-only and family plans in the small group market in each State
for the 2010 taxable year. For purposes of this calculation, the cap that is used for each
employee (be it self-only or family) depends on the coverage the employee takes. This
is not affected by whether the employer’s contribution for that employee is determined
with reference to the self-only plan, or whether an employer satisfies the uniformity
requirement in § 45R(d)(4) by paying an amount equal to at least 50 percent of the
premium for self-only coverage.
Example 9
. (i) In 2011, Employer offers one health insurance plan, Plan X. The
premiums for Plan X are $4,000 per year for self-only coverage, and $6,000 for family
coverage.

(ii) Employer pays 50% of the premiums ($2,000) for each employee electing
self-only coverage and pays $2,000 for each employee electing family coverage.

(iii) $2,000 is 50% of the premium for self-only coverage and 33% of the
premium for family coverage.

(iv) For employees electing self-only coverage, the limitation to the average
State premium for the small group market is 50% of the premium for self-only coverage,
and for employees electing family coverage, the limitation to the average State premium
for the small group market is 33% of the premium for family coverage.

C. Taxpayers With Fiscal Taxable Years

19
Section 45R is effective for taxable years beginning after December 31, 2009. If
a taxpayer is a calendar year taxpayer, the § 45R credit first applies for the taxable year
beginning on January 1, 2010 and ending on December 31, 2010. If the taxpayer is a
fiscal year taxpayer with a taxable year beginning, for example, on July 1, 2010, the §
45R credit first applies for the taxable year beginning on July 1, 2010 and ending on
June 30, 2011.

EFFECT ON OTHER DOCUMENTS
Notice 2010-44, 2010-22 I.R.B. 717, is amplified.

EFFECTIVE DATE
Section 45R is effective for taxable years beginning after December 31, 2009.

DRAFTING INFORMATION
The principal author of this notice is Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice contact Stephanie Caden at (202) 622-6080 (not a toll-
free call).