Health coverage tax credits create big divide

In the probably neverending debate over whether the national health-care reform law will ultimately be good or bad for business, there’s a tool that might make things a bit clearer.

The Small Business Majority is offering an online “tax credit calculator” – http://smallbusinessmajority.org/tax-credit-calculator/ – in an attempt to shed a little more light on what the law will do for businesses with fewer than 25 employees.

First, know that the health insurance premium tax credit is being offered starting this year to small businesses and nonprofits that:

• Have fewer than 25 full-time-equivalent employees;
• Pay average annual wages below $50,000 per FTE; and
• Contribute at least 50 percent of each employee’s premium.

Of course, every company is a little different, but by plugging in a few numbers a small business owner can get a fairly good estimate of how big a tax credit he/she can expect when filing the corporate return next year.

Let’s keep it very simple and say the business has 10 FTEs earning $35,000 and the employer is paying $30,000 annually for 50 percent of the total health insurance premium.

By entering the numbers requested into the online calculator, the employer in this example will realize an estimated annual tax credit of $6,300 for each year through 2013. That increases to an estimated $9,000 per year starting in 2014 and beyond.

In this example, the tax credit is 21 percent of the employer’s premium contribution. Employers with more employees and higher wages will realize a smaller tax credit, while employers with 10 or fewer full-time workers earning annual average wages of $25,000 or less qualify for the maximum 35 percent tax credit.

No. 1 concern

The ever-rising cost of providing health care coverage to employees has been the No. 1 concern of small business for years, with annual increases of 9 percent or more being common. A recent survey of business CFOs by Robert Half Management Resources found 47 percent citing the “rising cost of health care” as their top concern, beating out “controlling costs and improving profitability.”

“A top priority for many firms in a slowly improving economy is a stepped-up focus on containing costs,´ said Paul McDonald, Robert Half’s executive director. “Of particular concern to companies are health-care-related expenses and the possible impact of recent health-care reform on their business.”

Many small businesses have had to turn a larger share of the premium over to their employees to maintain coverage, while some have dropped health insurance altogether to make ends meet.

Part of the new law, officially known as the Patient Protection and Affordable Care Act, is aimed at helping small business cope with the cost of coverage for their employees. Under the law, an estimated 4 million small businesses across the nation are expected to be eligible for federal tax credits to help cover the cost of health insurance.

But small business remains divided on how much the reform will actually benefit them and at what price. The Small Business Majority, which claims to be politically impartial, strongly backs the law as beneficial to businesses with fewer than 25 employees. But the National Federation of Independent Business, on the other hand, has joined in a Republican-led lawsuit that challenges the constitutionality of the law.

“Small business owners everywhere are rightfully concerned that the unconstitutional new mandates, countless rules and new taxes will devastate their business and their ability to create new jobs,´ said Dan Danner, NFIB president and CEO.

What seems clear is that the business tax credit portion of the health-care reform act is sharply focused on helping the nation’s smallest firms on the lowest rung of the business-world ladder, those with the fewest employees and lowest wages. Companies with 25 or more employees or who pay salaries of $50,000 or more won’t benefit at all.

So where you as a small business owner come down on the health-care tax credits will probably rest entirely on your own particular situation. If you fit in the box, it’s going to help. If you don’t, it likely won’t.

Steve Porter covers health care for the Northern Colorado Business Report. He can be reached at 970-232-3147 or at sporter@ncbr.com.

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