Insurance providers require businesses to have a minimum number of staff members to qualify for the best rates for health insurance. Many small businesses struggle to provide health insurance because of this stipulation. The US federal government provides tax benefits as part of the Affordable Care Act passed in 2010 to help small businesses to provide health insurance plans to their employees. According to www.whitehouse.gov, there will be around four million small businesses that could be eligible for this tax reduction and end up saving $40 billion over the next 10 years.
The tax credit requires the employers to contribute at least half the total cost of the premium. Until 2013, these small companies are qualified for maximum credit of 35% of their part toward the employee’s insurance premiums. Non-profit organizations or companies can also qualify for tax credits, but they have to meet other qualifications.
The White House provides an example of a small-town mechanic who owns a small business to explain the workings of the tax credit. If the mechanic shop has ten employees who are compensated $25,000 each, the mechanic is qualified for the maximum credit. If the employer pays $70,000 towards premiums, his tax credit in the year 2010 would be $24,500 to pay his business back for the $70,000. The employer and his or her family are not included in the count of regular employees. The IRS website has more information about calculating his or her tax credit.
Many small businesses are eligible for a percentage of the tax credit. The US federal government is optimistic that the credit will support those businesses until the year 2014, when the exchanges open and offer an innovative, affordable way for small business owners to provide health coverage to their employees. This offers an incentive for people to be unafraid of losing their health insurance when moving from a large to a small company and thereby helping these small businesses to grow.
If you would like to calculate your current tax rate with an agent today, give us a call at 800-807-6871.