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Guidance Issued on Reform Law’s Tax Credit for Small Businesses

The Obama administration on Monday issued guidelines on the eligibility requirements and benefits of a small-business tax credit under the new health reform law, CongressDaily reports (McCarthy, CongressDaily, 5/17).

Beginning this year, small businesses that employ fewer than 25 full-time workers with average annual wages of $50,000 or less and cover at least 50% of the cost of coverage will be eligible for a 35% federal credit on premiums.

The subsidy will be available to small-business owners through 2014. In 2014, it will be raised to 50% of premium costs if employers purchase coverage through the insurance exchanges established by the overhaul. The tax credit will not be available after 2015, CQ HealthBeat reports.

According to a fact sheet issued by the U.S. Treasury Department, "The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers."

The Treasury fact sheet also notes that:

  • The credit applies to medical, dental and vision coverage (Reichard, CQ HealthBeat, 5/17);
  • Not-for-profit groups, such as religious groups, would be eligible for a partial tax credit;
  • Businesses in about 20 states that already get state tax breaks to subsidize premium costs also will be eligible for the federal tax break (Alonso-Zaldivar, AP/USA Today, 5/18);
  • Businesses with 10 or fewer full-time employees will be permitted to choose from three different methods to determine workers' hours, which will help employers "minimize their bookkeeping duties while receiving the maximum tax credit for which they are eligible";
  • The tax credit will reduce small businesses' expenditures by $40 billion through 2019; and
  • About four million U.S. businesses potentially will be eligible for the credit.

Michael Mundaca, assistant secretary for tax policy at the Treasury department, noted that not all of the four million eligible businesses owners provide employee health coverage (CQ HealthBeat, 5/17). However, he said that the new credit "can provide a good deal of incentive for those businesses ... to take steps to do so."

Credit Guidelines Draw Mixed Reactions

Reaction to the guidelines was "mixed," according to the AP/USA Today.

James Gelfand, health policy director for the U.S. Chamber of Commerce, said, "For some businesses this will be helpful, but for many it will not be helpful," adding, "You have to be so small that it will be difficult. We're thinking mom-and-pop shops with one or two employees." Gelfand also noted, "It's hard to imagine businesses creating health care benefits in response to this credit," adding, "It's much more likely that this credit will offset the cost to businesses already providing coverage."

John Arensmeyer, head of the Small Business Majority, said that business owners have expressed interest in learning more about the credit. He added, "Would we have preferred a tax cut that was a lot bigger? [Of] course," adding, "But we think it's a lot better than nothing -- and a big piece of an overall solution. I never met a small business owner who turned their nose up at a tax credit" (AP/USA Today, 5/18).

NFIB Remains Indifferent to Tax Credit, Says Few Will Qualify

Meanwhile, officials at the National Federation of Independent Business -- which announced last week that it is joining a multistate lawsuit challenging the constitutionality of the new reform law's individual mandate -- said that the group will continue to work to overturn the law and the mandate.

NFIB Tax Counsel Bill Rys said that the group was aware of the tax credit but it "doesn't impact our decision [to join the lawsuit], because it doesn't address our number one concern, the cost of health care." Rys added that NFIB has concluded that the benefits of the new tax credit would be "minimal" for small businesses and it would not encourage businesses to provide coverage to their uninsured employees (CongressDaily, 5/17).

NFIB's website states that "very few small businesses will actually qualify," noting Congressional Budget Office data to estimate that "just 12% of the small business population would benefit in any way" (CQ HealthBeat, 5/17).

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