PPACA’s health care tax credits for small businesses were a real public opinion win. It seemed like a great idea to keep small employers interested in providing benefits to their employees. However, in 2010, the credit was claimed by only 170,300 businesses out of a pool of four million potentially eligible companies.
What did we miss?
The new federal health care law makes tax credits available to small employers with fewer than 25 full-time equivalent employees with average annual wages of less than $50,000. To be eligible, employers must contribute at least 50% toward their employees’ health insurance premiums. In 2010 through 2016, the maximum credit is 35% of the employer’s contributions. The credit available to for-profit corporations increases to 50% of the employer’s contribution toward premiums from 2014–2016 and then the credit phases out.
Such a deal! But here’s why so few employers received the credit:
- 80% of small businesses don’t offer coverage, and the tax credit alone won’t change this.
- Many small firms do not meet the wage limits, particularly those in large population centers.
- Form 8941 is extraordinarily complex and lengthy and with the average credit at $2,700, many eligible businesses find that complying doesn’t justify the cost.
If the health care law withstands Supreme Court scrutiny, Congress will need to revisit this credit so that it can live up to the initial buzz it generated.