NEW YORK—On May 16, the Internal Revenue Service announced ground rules for small firms wishing to claim a new federal tax credit for health insurance.

Created under the recently enacted health law, the tax credit covers up to 35 percent of the premiums that certain small businesses pay on behalf of their employees. The IRS notice also addressed unanswered questions about the new benefit, which is available starting this year.

The IRS’s action comes days after the nation's largest small business lobbying group announced it was joining a lawsuit challenging the health care law. The National Federation of Independent Business argues that Congress overstepped its constitutional authority by imposing a requirement that most Americans obtain health insurance either through an employer, a government program or buying it directly.

The IRS notice clarifies that employers can also apply the credit toward dental and vision benefits and is not limited to medical coverage. A newly released fact sheet released by the Treasury Department also notes that employers can claim the federal benefit even if they receive state tax credits for their insurance premiums.

The White House estimates up to 4 million small businesses may qualify for the tax credit, but it is unclear how many businesses actually will be eligible since many small businesses do not provide health insurance. For eligible businesses to qualify, companies must pay at least 50 percent of their workers' premiums.

Eligibility is also limited by company size and wages. A firm has to have fewer than 25 full-time workers averaging less than $50,000 a year in pay.