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Rev. date: 01/01/2011

The "Affordable Care Act" of 2010 Offers Employers New Tax Deductions and Credits

Tax Topic 763
A variety of new business tax deductions and credits for employers were created by the Affordable Care Act which was passed into law on March 23, 2010. It contains some tax provisions that took effect in 2010, and more that will be implemented during the next several years. The information under the following headings briefly explains some of the key provisions of the new legislation that are now in effect.

The Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees, and specifically targets those businesses with low and moderate income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. For the 2010 tax year the credit generally is available to small employers who pay at least half the cost of single coverage for their employees.

Health Coverage for Older Children

Health coverage for an employee's children who do not turn 27 years of age at any time during the taxable year is now generally tax-free to the employee. This expanded health care benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans (plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits) to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self employed health insurance deduction on their federal income tax return.

Medicare Part D Coverage Gap "donut hole" Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan's coverage gap. This payment is not made by the IRS, and it is not taxable. More information on the rebate can be found at

Therapeutic Discovery Project Program

This program provides tax credits and grants to taxpayers with no more than 250 employees engaged in therapeutic discovery projects that show a reasonable potential to:
Allocation of the credit will also take into consideration which projects show the greatest potential to create and sustain (directly or indirectly) high-quality, high paying U.S. jobs and to advance U.S. competitiveness in life, biological and medical sciences.
IRS guidance describes the process by which firms can apply to have their research projects certified as eligible for the credit or grant. Companies may submit applications for certification beginning June 21, 2010. Applications must be postmarked no later than July 21, 2010.
For more information on these business credits and benefits click the following link: Affordable Care Act of 2010.