HealthLawProf Blog

Editor: Katharine Van Tassel
Concordia University School of Law

Saturday, September 18, 2010

Small Business Gets a Tax Credit for Health Care

Small business pays 18 percent more for the same health care coverage for employees that large businesses have, according to John Arensmeyer, chief executive of Small Business Majority.  With astronomical increases in premiums over the past several years, many small business owners are considering dropping health care coverage.  For these business owners, the new small business tax credit for employee health coverage comes just in time to avoid making this hard choice.

According to the NY Times:

Just over one-third of Americans work for small businesses with fewer than 100 employees. If you’re one of those workers, you know that very few small companies offer comprehensive health insurance — or for that matter, any health insurance at all. Even  when they do, premiums can be prohibitively expensive, because small businesses can’t  negotiate the discounts given to large group plans.

To help close that gap, the government this year is offering a tax credit 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 percent 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 percent of their health insurance premium  costs. Companies with larger numbers of employees earning more receive smaller  credits on a sliding scale.

Not every small shop will qualify for the credits, but a recent study by two advocacy  groups, Small Business Majority and Families USA, estimated that 84 percent of small  businesses were eligible. (This includes firms that currently offer some type of  coverage.)

A simple worksheet on the I.R.S. Web site   helps to show whether your firm has the proper number of employees  and average salaries to qualify for the new tax credits. The site also has clear  explanations of how the credits work.

There is no application process; the business owner simply files one additional form with  the company tax return. Start pulling together the figures now, though. The tax credit  begins in the 2010 tax year, so the payoff will come as soon as next January ….

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