7 Reasons to Love the Small Business Health Care Tax Credit

May 10, 2012
7 Reasons to Love the Small Business Health Care Tax Credit

U.S. small businesses that offered employee health insurance in 2011 qualify for $15.4 billion in tax credits, but many don’t even know the credits exist, a new report reveals.

Do you? You should, if your full-time staff is smaller than 25 and your average wage is under $50,000. Such employers can claim up to 35 percent of health insurance costs, provided they pay at least half of their workers’ premiums.

The Small Business Health Care Tax Credit was first available in the 2010 tax year. However, only 29 percent of eligible businesses pursued it, according to “Good Business Sense: The Small Business Health Care Tax Credit in the Affordable Care Act.” a report released yesterday by Families USA and Small Business Majority.

Why so few? Lack of information, for one. Nearly 60 percent of small business owners have never heard of the tax break, says Small Business Majority founder and CEO John Arensmeyer, who participated in a May 9 teleconference unveiling the report.

Here are some reasons to get acquainted with the credit:

1. It’s easier than it sounds.

Filing yet another tax form may seem complicated, but the process is fairly simple, especially if you enlist your accountant, says Ron Nelsen, owner of Pioneer Overhead Door in Las Vegas. Nelsen, who also spoke during the teleconference, received a $2,722 credit for 2011.

“It’s just a few more pages in your tax return and you’re done,” he said.

And starting in 2014, state health insurance exchanges will assist small businesses with purchasing employee health plans. Also known as SHOPs, or Small Business Health Options Programs, the exchanges will streamline the search for affordable insurance packages.

2. It’s retroactive … and just gets more generous.

Eligible small businesses that don’t take the credit in 2011 can claim it by filing an amended return within three years, according to the report.

Another 2014 perk: That year, the tax credit rises from 35 to 50 percent. So if you qualify, the IRS could feasibly reimburse up to half your health insurance costs.

3. It’s Turbo Tax-adaptable.

As more taxpayers pursue the Small Business Health Care Tax Credit, tax-preparation software packages will weave the credit into their step-by-step systems. This will help business owners, accountants and tax preparers determine whether a company is eligible.

4. It’s a leg up on the competition.

While 99 percent of larger companies provide health insurance, most small businesses simply can’t afford it, the report says. In fact, less than half of the nation’s smallest businesses (10 or fewer employees) offer health coverage, compared with 71 percent of businesses with twice as many workers.

“As a small business, you are constantly trying to retain your people,” said teleconference participant ReShonda Young, operations manager of Alpha Express, a delivery company in Waterloo, Iowa. “If you can offer health insurance and be more competitive, get good employees and actually keep them, your costs are going to be lower just because of the costs of hiring and training people.”

5. It’s a leg up for vulnerable populations.

Since the recession, an increasing number of Americans lack health insurance. The uninsurance rate has climbed from 14.7 percent in 2007 to 17.1 percent today, according to Gallup and Census data. Minority workers, in particular, are at greater risk, says the Kaiser Family Foundation. A 2010 Kaiser study found that 57 percent of Hispanic workers under age 65 were uninsured, compared with 40 percent of African-Americans and 24 percent of white non-Hispanics.

6. It’s not an order.

Contrary to some reports, the Affordable Care Act does not require small businesses to provide health coverage. “There are no employer mandates in the law,” the report says, “and there are no employer responsibility requirements at all for businesses with fewer than 50 workers, which account for 96 percent of all firms in the United States.”

7. It’s worth it.

In Virginia alone, 76,260 small businesses – or 68 percent of roughly 112,000 small businesses in the state – will qualify for 2011 tax credits that total $369 million.

Are you one of them?