Health Care Reform Now:
Small Business Credit

Although most of the provisions of new Patient Care and Affordable Care Act do not take effect until at least 2014, employers should be aware of some provisions that have current relevance. The most noticeable is the Small Business Health Care Tax Credit.

For some smaller for-profit and non-profit employers, the law provides an incentive to provide new health care coverage and retain existing coverage for workers. An organization with less than 25 employees may already be eligible for a tax credit this year without having to do anything! On the other hand, it may be worthwhile to consider providing health insurance to employees for the first time, or to enhance the coverage now offered.

Effective for taxable years starting after 12/31/2009, qualifying organizations will be eligible to receive a credit of up to 35% of their health insurance premiums. In 2014 and beyond, eligible employers who purchase coverage through a state exchange may qualify for a credit for an additional two years of up to 50 percent of their contribution.

Employers with more than 25 full-time employees or equivalents (FTEs,) or more than an average payroll of $50,000 per employee, do not qualify. Organizations with 10 or less FTEs, or with an average annual payroll of $25,000 or less, will be eligible for the maximum credit provided the other requirements are met. The amount of the credit will be decreased as the number of employees and average compensation increases.

The organizations must pay premiums equal to at least 50% of what the cost would be to provide single coverage. Furthermore, the amount eligible for the credit cannot exceed 50% of the designated average for health care coverage for each state as determined by the Health and Human Services Department. For Ohio, the averages are $4,667 for single coverage and $11,293 for family coverage. For Florida, the corresponding amounts are $5,161 and $12,453.

There is a strategic decision that qualifying employers will have to make because the credit can only be taken twice after 2013. For organizations that expect to hire more employees or have a higher average wage, it may make sense to use the credit in the earliest years. If payroll statistics are expected to remain the same, but premiums are expected to increase, it may make sense to wait. The credit can be carried back one year and forward 20 years.

Other things important to know now:

• The amount of the tax credit will subtracted from the amount of the otherwise deductible health insurance premiums to determine the amount of the deduction
• The credit can be applied against the alternative minimum tax
• Owners and their family members are not considered in determining the number of employees or average compensation, nor will premiums paid for their coverage be considered
• Controlled groups and affiliated groups will be treated as one employer
• The credit can be carried back one year and forward twenty years

If you would like to discuss how this applies to your organization, please feel free to contact a member of your service team or Frank Dixon at (330) 480-4620 or fdixon@cohencpa.com.