New Health Care Law Will Offer Temporary Help to Small Businesses Seeking Coverage for Employees

Published: Wed 02 Jun 2010

Thomas Kristoffersen

For small business owners who are struggling to afford workers' health insurance, the new health care law may offer fast financial assistance. The smallest companies might receive temporary income tax credits that pay for as much as 35 percent of their medical insurance premium contributions. Larger companies may receive smaller tax credits.

Of course, the credits come with a few strings attached, and not all business owners are convinced they will offer enough help.

Blake Anderson, who owns a small construction company in Durham, North Carolina, believes the new law will provide sufficient relief. When he began his business three years ago, he looked into buying insurance for himself, his seven workers, and his business partner. But when an insurance broker explained to Mr. Anderson that his heart condition would make the coverage exorbitantly expensive, "the conversation ended there," he comments. Now, Anderson is looking into health insurance coverage once again.

Thanks to the new health care law, Anderson's business will now enjoy the following: Beginning this year, companies with ten or fewer full-time employees, or an equivalent number of part-time employees, and average yearly wages of less than $25,000 will qualify for the full 35-percent tax credit. The law excludes the business owner's salary from the requirements. Above those limits, the credit gets smaller and smaller until it stops for businesses with 25 or more full-time workers and average annual wages of $50,000 or more.

The government estimates that 1.8 million to 4 million small businesses will qualify for the tax credits. Businesses must pay at least half of the health insurance premiums for their workers' coverage in order to be eligible. Non-profit organizations may qualify for tax credits of as much as 25 percent.

Future Changes

The system that takes effect this year will remain in place until 2014, when state health insurance marketplaces, or exchanges, will start selling coverage. From that point on, only small businesses who purchase health insurance on the exchanges may receive the tax credit. On the other hand, the credit will become larger, with a maximum of 35 percent for nonprofits and 50 percent for small businesses. Because the health care reform law should, in theory, make medical insurance more affordable by 2014, the tax benefits will be time-limited. Small companies will only be able to claim the tax credit for two years.

Detractors

Not everyone is sold on the tax credit portion of the health care law. Critics claim the credit is too complex and fails to address the underlying issue for small-business owners: the skyrocketing cost of health insurance. "As long as costs keep going up, the credit is going to become less valuable," explains Bill Rys, the National Federation of Independent Business' tax counsel.