Indiana tax credit a boon for small businesses and HRAs

Small businesses in Indiana will have an opportunity in 2024 to receive tax credits for offering health reimbursement arrangements to their employees instead of traditional group health insurance. This move signifies a big leg up for small businesses in terms of their tax burden and their ability to recruit and retain employees. Here’s what to know!

This post will cover:

How does the Tax Credit for Small Businesses in Indiana work?
Who is eligible for the Indiana Tax credit for HRAs?
How much is the tax credit for HRAs?
Are there rules regarding House Bill 1004?
When does the HRA tax credit begin?

About Indiana House Bill 1004, Healthcare Matters

As Individual Coverage HRAs are gaining popularity across the country, Indiana lawmakers have taken notice of the benefits of ICHRAs for small businesses and have taken steps to help them implement these individual coverage health reimbursement arrangements.

As part of the latest legislative session, the state has introduced a tax credit for employers with less than 50 full-time workers who offer ICHRAs, which will be available for two years.

This move is aimed at supporting small businesses in Indiana by easing their tax burden and enabling them to attract and retain employees more effectively.

The legislation was Indiana house bill 1004: House Bill 1004 – Health care matters – Indiana General Assembly, 2023 Session.

How does the Tax Credit for Small Businesses in Indiana work?

Small businesses in Indiana with less than 50 employees can receive a state tax credit if they offer a health reimbursement arrangement instead of traditional group health insurance, as long as their contribution meets certain standards. This encourages employers to provide cost-effective healthcare options for their employees and helps alleviate their tax burden.

How much is the tax credit?

Employers can claim up to $400 per employee for the first year and $200 per covered employee in the second year. So if you had 49 employees, that would be up to $19600 for year one and $9800 in year two. The bill does include some parameters for this; the state will not approve HRA tax credits when the total credits approved equals $10,000,000 in any state fiscal year.

A few other key points here:

The credit received may not exceed the state tax liability of a qualified
taxpayer.
If the amount of a credit exceeds a qualified taxpayer’s state tax
liability for a particular year, the qualified taxpayer may carry the
excess over to the immediately succeeding taxable years
The credit carryover cannot be used for a period exceeding
ten years after the date that the initial credit was made
The amount of a credit carryover shall be reduced to the
extent that the carryover is used by the qualified taxpayer
to obtain a credit for any subsequent year
A qualified taxpayer is not entitled to a carryback or refund
of any unused credit

Are there reporting requirements?

Glad you asked. Yes, there are reporting requirements for Indiana House Bill 1004.

A qualified taxpayer claiming the credit must report to the department of insurance every three years.
This report must state whether or not the company continued with the HRA or reverted back to traditional health insurance.
If the company continues with the HRA, the report must indicate the amount of the benefit
Credits must be claimed on the qualified taxpayers state tax return in the manner instructed by the department

What to know about the approval process for Indiana House Bill 1004

The department of revenue will record the time of filing of each return
claiming an HRA credit and will approve claims in the order in which they were received.
The department may not approve a claim for an HRA credit after the date on which the total credits approved equals $10,000,000 in a state fiscal year.

Who is eligible for the Indiana Tax credit for HRAs?

Small businesses are eligible if:

The company has fewer than 50 employees.
The company is a qualified taxpayer defined as a corporation, LLC, partnership, or another entity that has any state tax liability (adjusted gross income tax, financial institutions tax, insurance premiums tax, or nonprofit agricultural health coverage tax.
The company has adopted a health reimbursement in lieu of traditional employer sponsored health insurance.
The employer’s contribution toward the health reimbursement arrangement meets certain standards and is equal to the contribution from the previous group plan.