ERC Credit FAQ #67. For An Eligible Employer Who Sponsors A Fully-Insured Group Health Plan, How Are The Qualified Health Plan Expenses Of That Plan Allocated To The Qualified Wages On A Pro Rata Basis?

September 27, 2022 Leave a comment

Frequently asked question #67 “For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?” under the Determining the Amount of Allocable Qualified Health Plan Expenses section of FAQs: Employee Retention Credit under the CARES Act, provided by the IRS.gov to help business owners understand the ERC program. Information is below for the question #67 For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?

ERC Credit Frequently Asked Question #67:

Amount of Allocable Qualified Health Plan Expenses FAQs

67. For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?

An Eligible Employer who sponsors a fully-insured group health plan may use any reasonable method to determine and allocate the plan expenses, including (1) the COBRA applicable premium for the employee typically available from the insurer, (2) one average premium rate for all employees, or (3) a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.

If an Eligible Employer chooses to use one average premium rate for all employees, the allocable amount for each day an employee covered by the insured group health plan is entitled to qualified wages could be determined using the following steps:

  1. The Eligible Employer’s overall annual premium for the employees covered by the policy is divided by the number of employees covered by the policy to determine the average annual premium per employee.
  2. The average annual premium per employee is divided by the average number of work days during the year by all covered employees (treating days of paid leave as a work day and a work day as including any day on which work is performed) to determine the average daily premium per employee. For example, a full-year employee working five days per week may be treated as working 52 weeks x 5 days or 260 days. Calculations for part-time and seasonal employees who participate in the plan should be adjusted as appropriate. Eligible Employers may use any reasonable method for calculating part-time employee work days.
  3. The resulting premium should be adjusted to reflect any portion that employees contribute after-tax.
  4. The resulting amount is the amount allocated to each day of qualified wages.

Example: Employer D sponsors an insured group health plan that covers 400 employees, some with self-only coverage and some with family coverage. 

Each employee is expected to have 260 work days a year. (Five days a week for 52 weeks.) The employees contribute a portion of their premium by pre-tax salary reduction, with different amounts for self-only and family.

The total annual premium for the 400 employees is $5.2 million. (This includes both the amount paid by the Eligible Employer and the amounts paid by employees through salary reduction.)

For an Eligible Employer using one average premium rate for all employees, the average annual premium rate is $5.2 million divided by 400, or $13,000. 

For each employee expected to have 260 work days a year, this results in a daily average premium rate equal to $13,000 divided by 260, or $50. That $50 is the amount of qualified health plan expenses allocated to each day of qualified wages per employee.

For more Internal Revenue Service (IRS) Department of the Treasury Employee Retention Credit (ERC) Amount of Allocable Qualified Health Plan Expenses FAQs, visit the official IRS.gov tax website.

Conclusion and Summary on ERC Credit FAQ #67. For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?

The “For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?” is Frequently Asked Question #67 of many commonly asked questions small business owners are wondering about how to file the Employee Retention Tax Credit (ERTC). The IRS ERC Tax Credit program is a confusing and complex process to determine the correct ERC calculations your business qualifies for. Answers to “For an Eligible Employer who sponsors a fully-insured group health plan, how are the qualified health plan expenses of that plan allocated to the qualified wages on a pro rata basis?” and filling out form 941-X may change slightly from frequently updated rules and regulations from the IRS. Leave a comment below if you have further questions on ERC Credit FAQ #67.

Help Completing / Filing / Claiming the Employee Retention Credit (ERC)

Receive Up to a $26,000 ERC Credit from the IRS Per Employee

Disaster Loan Advisors can assist your business with the complex and confusing Employee Retention Credit (ERC), Form 941-X, and the Employee Retention Tax Credit (ERTC) program. 

Depending on eligibility, business owners and companies can receive up to $26,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.

The ERC / ERTC Tax Credit Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.

We DO NOT charge a percentage (%) of your ERC Refund like some companies are charging. Some ERC firms out there are charging upwards of 15% to 35% of your ERC refund!

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Schedule Your Free Employee Retention Credit Consultation to see what amount of employee retention tax credit your company qualifies for.

Cover Image Credit: Irs.gov / ERC FAQ / Disaster Loan Advisors

Mark Monroe
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