Making Sense of the Small Business Health Care Tax

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Cutting Through the Static

With all of the controversy surrounding the new Affordable Care Act, small business owners may well be left wondering what exactly it means for them.

Opponents say that health insurance companies will pass on costs to the insured, while supporters contend that the health care system needs fixing, and this is a good starting point. Opinions about whether or not the new changes are a good thing abound, but we’ll leave the debating to the professionals.

If you contribute 50% or more of your employees health insurance premiums, you may qualify…

For now, let’s concentrate on how small business owners are affected by the new regulations, and what the implications will be at tax-time.

What the ACA Means for Small Business Owners

Currently, many small businesses owners would like to be able to provide affordable health insurance to their employees, but are unable to do so. This is because the costs associated with establishing employer-sponsored health insurance programs are prohibitively high for most small business owners. The premiums paid by small businesses are typically 18% higher than those paid by larger firms.

The Affordable Care Act aims to make it more affordable for small employers to establish health insurance programs for their employees. To this end, the ACA offers tax credits to those that do. Through 2013, the maximum tax credit available to small businesses that provide employee-sponsored health insurance programs is 35% (25% for non-profits). Starting in 2014, the max credit will increase to 50% (35% for non-profits).

It is also important to note that claiming the tax credit does not affect a business’s ability to claim a business expense tax deduction, for the premium costs which are not covered by the new tax credit. This will further offset the cost of providing health insurance to your employees.

Also in 2014, the ACA establishes affordable insurance exchanges, which are designed to level the playing field by giving small business similar purchasing power to that enjoyed by larger corporations.

Is Your Business Eligible for the Small Business Tax Credit?

Consider the following when you determine whether or not your business qualifies for the small business tax credit:

  • if you contribute 50% or more of your employees health insurance premiums, and
  • if you have fewer than 25 full-time equivalent (FTE) employees (which is equal to 50 half-time employees, or 100 quarter-time employees), and
  • each FTE employee earns less than $50,000 per year on average, or
  • if you have 10 or fewer FTE employees who earn an average of $25,000 per year or less…

If you meet these consideratoins, then your business qualifies.The tax credit is based on a sliding scale, so small businesses receive larger credits. For example, if you have 5 full-timers who earn an average of $25,000, then you’ll qualify for a larger credit than an employer with 20 employees who earn an average of $45,000 per year.

What If You Elect Not to Provide Health Insurance?

Well, that depends on the size of your business. For large businesses (those with over 50 employees), an employer-sponsored health-insurance plan is a requirement. Businesses with fewer than 50 employees are exempt from this requirement, but the lower costs and tax benefits are intended to encourage smaller employers to offer health insurance.

Hopefully this article has answered some of your questions about the Affordable Care Act’s implications for small businesses. However, we realize that it’s not exhaustive, so consider doing more in-depth research at if you have unanswered questions.

You should also check out the multitude of health care options that our friends at ehelathinsurance offer.  Their motto is “Any Time. Any Where.”  Find them online or pick up the phone and take ’em up on that.