Small Businesses and Health Care Reform

April 27, 2010 | Subscribe to our RSS Feed

For owners of small businesses and their workers, the recently enacted health care reform legislation may be causing some anxiety.  Here are some key provisions to pay attention to:

• TAX CREDITS- The new law provides small employers with a tax credit for non-elective contributions to purchase health insurance for their employees.
  • To qualify, a business my offer health insurance to its employees as part of their compensation and contribute at least half of the total premium cost.
  • The business must have no more than 25 full-time employees (FTEs), and the employees must have annual full-time equivalent wages that average no more than $50,000.
  • The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013.

• CALCULATING THE CREDIT- For tax years beginning in 2010, 2011, 2012 or 2013, the credit is generally 35% or the employer’s nonelective contributions toward the employees’ health insurance premiums.  The credit phases out as firm-size and average wages increase.

• PENALTIES- Although the new law imposes penalties on certain businesses for not providing coverage to their employees (“pay or play”), most small businesses won’t have to worry about this provision because employers with fewer than 50 employees aren’t subject to the “pay or play” penalty.

• THE “CADILLAC TAX”?- The new law places an excise tax on high-cost employer sponsored health coverage.  This is a 40% tax on insurance companies, based on premiums that exceed certain amounts.  The tax is not on employers themselves, but it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.  This new tax applies to tax years beginning after Dec. 31, 2017.

We will provide more information as it comes to us.

Questions?

sarah.sedlak@glassjacobson.com

Our friend Matthew Cohen of M&T Bank compiled this information.  Contact Matt: matt.cohen@mtb.com