Business

Health care tax credits will aid small businesses | Calvin Goings

Calvin Goings is the Small Business Administration
Calvin Goings is the Small Business Administration's regional administrator.
— image credit: Courtesy photo

Today, many small businesses across America struggle to provide health benefits to their employees. On average, small businesses pay about 18 percent more than large businesses for the same health insurance policy. The Affordable Care Act helps level the playing field by lowering costs for small businesses and increasing their bargaining power. At the same time, small business owners will have the flexibility to make choices they believe are right for their business and their employees. 

Starting in 2014, firms with up to 100 workers can pool their buying power and reduce administrative costs by purchasing insurance through a health insurance exchange.  And the Congressional Budget Office predicts that, thanks to the Affordable Care Act, premiums in the small group insurance market will decrease by up to 4 percent by 2016.

To make health insurance more affordable for small businesses, the new law also includes tax credits for many small businesses that offer coverage to their workers.  Small businesses that have fewer than 25 employees, pay average annual wages below $50,000, and pay for most of their employees’ health coverage may qualify for a tax credit of up to 35 percent of health expenses. 

Due to their special status under law, religious institutions that obtain coverage through a denominational organization that self-insures the coverage, can also qualify for the credit, even though the coverage is not fully insured – a requirement for most employers. 

A broad range of common arrangements used by employers to subsidize insurance coverage for their workers will qualify for the credit for tax years 2010 to 2013.  For example, firms that pay more to help older workers cover the higher premiums and firms that allow employees a choice of coverage may both qualify for the credit. 

Small employers that make contributions to a multi-employer plan that are used to pay premiums for employee health insurance may also qualify for the credit, so long as 100 percent of the cost of the coverage for all employees covered by the multi-employer plan is paid by employer contributions, not by employees.

Small employers now have a full set of tools to claim credit for 2010 when they file their 2010 taxes. The tax credit is already having a substantial impact. Insurance companies have used the tax credit to encourage more businesses to provide benefits. The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.

Find answers for small business questions about which firms qualify, instructions for filing and the one-page form (Form 8941) at www.irs.gov.

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