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Small Business Health Insurance Tax Credit Goes Into Effect

Posted Sep 27 2010 10:48pm
One aspect of the new health care bill being implemented is the small business health insurance tax credit.   It is estimated that the value of these credits will reach some $40 billion over the next 10 years. Those tax credits of course are being offset by large tax increases in other areas, including taxes on businesses and individuals.   This year, the tax credit extends to companies with fewer than 25 full-time workers and average wages of less than $50,000 a year. To qualify, employers must pay at least 50% of their employees’ health care premiums. Small businesses with 10 full-time employees or fewer earning an average of $25,000 or less are eligible for the largest credit, 35% of their health insurance premium costs. Companies with larger numbers of employees earning more receive smaller credits on a sliding scale. Analysis shows that up to 16.6 million workers are in firms that would be eligible for the tax credit in 2010 to 2013.

The tax credit only applies to "employees" and excludes owners and their families of small businesses. This would seem to be a somewhat punitive measure which punishes small firms, sole proprietors, LLC and S corps.   For some reason, Congress and the President felt that these entities did not qualify for a health insurance credit even though increasingly, many couples run their businesses as a LLCs with only one or two partners. This would appear to be a flaw in the application of this "benefit".

Nevertheless, this may be some good news to some small employers over the short-term, although it is clear that premium increases will continue over the next several years, which will make the future end of these credits very painful and problematic for those businesses who fail to plan for that day of reckoning.

Small Business Health Care Tax Credit Goes into Effect - http://www.associatedcontent.com/article/5837808/small_business_health_care_tax_

Small Business Health Insurance Tax Credit Goes Into Effect - http://realhealthreform.wordpress.com/2010/09/27/small-business-health-insurance

Lightening the Health Care Load for Small Businesses - http://www.nytimes.com/2010/09/18/health/18patient.html?_r=1&emc=tnt&tntemail0=y

Realizing Health Reform's Potential: Small Businesses and the Affordable Care Act of 2010 - http://www.commonwealthfund.org/Content/Publications/Issue-Briefs/2010/Sep/Small

Small Business Health Care Tax Credit Worksheet - http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf

Fact Sheet: Small Business Health Care Tax Credit - http://www.whitehouse.gov/the-press-office/fact-sheet-small-business-health-care

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