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RESOURCE CENTER AND ARCHIVES

Does your small business qualify for health care tax credits?comment (0)

July 25, 2013

By Sondra Washington


Does your small business qualify for health care tax credits?

Fourth of Six in a Series

To say that the new Affordable Care Act is complicated is an understatement. Portions of the law have been effective since early 2010, and many people — health care and insurance experts included — still don’t understand various portions of its policies and implications. But as the powers that be wade through the nearly 1,000-page law, there are some details that we do know. One of these is the small businesses tax credit, which has been available for the past three years but will change again starting January 2014.

Unfortunately for many small business owners, pinching pennies is a way of life necessary to keep their companies afloat. At times, tough choices have to be made and some have had to forfeit providing medical insurance for their employees since the cost would be more than they could afford to pay.

According to the Alabama Department of Insurance (DOI), the health care reform act has been an attempt over the past three years to improve this problem. It has done this by offering business owners with less than 25 full-time employees and who “pay wages averaging less than $50,000 per full-time-equivalent employee per year” a tax credit of up to 35 percent of premiums paid when they provide medical insurance for their workers, according to the Internal Revenue Service (IRS). Nonprofit organizations can qualify for up to a 25 percent tax credit.

“The full (tax) credit [is] available to employers with 10 or fewer employees and average annual wages of less than $25,000,” the DOI states.

Businesses with 50 full-time equivalent employees will be required by law to provide health care benefits by 2015. The original date of Jan. 1, 2014, was recently delayed to provide more time to prepare for the new requirement. Yet smaller businesses have no such obligations.

“If you are a small business, you’ll claim the credit as part of the general business credit on your income tax return,” according to an IRS YouTube video. “Also since the credit will be less than the full amount of your premium payments, you may be eligible to claim a business expense deduction for the difference.”

This credit, which took effect January 2010, has reportedly saved some small business owners across the country up to $7,000 depending on the size of their companies and the amount of medical insurance premiums they paid. It is expected to provide “$40 billion in relief for small firms over the next 10 years,” www.healthcare.gov reports.

The IRS offers an example of how this credit may apply to businesses: “If you pay $50,000 a year toward workers’ health care premiums — and if you qualify for a 15 percent credit, you save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000.”

The U.S. Department of Health and Human Services website states, “Small businesses are the backbone of our economy, but high health care costs and declining coverage have hindered small business owners and their employees. 

“Over the past decade, average annual family premiums for workers at small firms increased by 123 percent, from $5,700 in 1999 to $12,700 in 2009, while the percentage of small firms offering coverage fell from 65 to 59 percent.”

In 2014 the tax credits increase for small businesses and nonprofit organizations participating in the Small Business Health Options Program (SHOP) Marketplace (see story, page 6). The increase potential is up to 50 percent for small businesses and 35 percent for nonprofits.

According to www.healthcare.gov, the tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. 

“The smaller the business, the bigger the credit,” the website states.

Small business owners can find out if they qualify for the health care tax credit by visiting www.irs.gov or consulting with an accountant or tax adviser.

For more information on small business tax credits and the Affordable Care Act in general, visit www.healthcare.gov, which contains extensive explanation of the health reform law. 

Individuals also can receive updates about various coverage options through this website. 

For information on automatic enrollment, employer responsibility and waiting periods, visit www.dol.gov/ebsa/newsroom/tr12-01.html.

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Can you keep your doctor?

From www.healthcare.gov:

“Depending on the plan you choose in the Marketplace (see story, page 6), you may be able to keep your current doctor.

“Most health insurance plans offered in the Marketplace have networks of hospitals, doctors, specialists, pharmacies and other health care providers. Networks include health care providers that the plan contracts with to take care of the plan’s members. Depending on the type of policy you buy, care may be covered only when you get it from a network provider.

“When comparing plans in the Marketplace, you will see a link to a list of providers in each plan’s network. If staying with your current doctors is important to you, check to see if they are included before choosing a plan.”

In 2010 President Obama said Americans would not have to give up their insurance nor their doctor if they wanted to keep one or both, so the word may in the above explanation is what has many concerned.

Reporters and bloggers are asking what it really means.

Michael Patterson, vice president of legal services for Blue Cross and Blue Shield of Alabama, said he anticipates insurance plans to be similar but deductibles to be higher.

Still only plans existing prior to March 23, 2010, are eligible to be “grandfathered” in as an optional plan, according to www.healthcare.gov. These plans do have to follow the guidelines of the new law such as ending lifetime limits on coverage, ending arbitrary cancellations and covering adult children up to age 26. 

A few things they don’t have to do are: cover preventative care for free, guarantee your right to appeal, be held accountable for excessive premium increases nor protect your choice of doctors, according to www.healthcare.gov.

It is unclear how it all will play out because regulations are changing consistently as each segment of the law is implemented.

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How to calculate number of employees

Does your business have 50 or more full-time equivalent employees? To calculate:

Full-time employee — works 30 hours or more. Each full-time employee counts as one equivalent.

Equivalent — The hours of part-time employees (those working less than 30 hours per week) are to be added together. Divide the total of part-time hours worked in a month by 130. Then add this number to the number of full-time employees to determine the total amount of equivalents.

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Various options, prices will be offered in online health care shopping experience

It may be similar to shopping for your favorite book or household item on Amazon.com or purchasing that wedding gift on Target.com.

A prototype of exactly how it will look has not been made public, but insurance experts do know the new health care insurance exchange system will be a web-based shopping experience.

These “health insurance marketplaces,” called the Small Business Health Options Program (SHOP), will provide consumers and small businesses a form of “one-stop shopping … to buy insurance from qualified health plans available through a marketplace,” according to the Centers for Medicare and Medicaid Services. 

With the new exchanges, “every health insurance plan in the new marketplace will offer comprehensive coverage, from doctors to medications to hospital visits. You can compare all your insurance options based on price, benefits, quality and other features that may be important to you in plain language that makes sense,” according to www.healthcare.gov. 

Companies with fewer than 100 employees also will be allowed to shop in the health insurance Marketplace although they will not receive the tax credit available to small businesses (see story, page 5).

While the initial hopes were for states to set up their own SHOP Marketplaces, 26 states including Alabama declined to participate in the exchange plan.

In a Nov. 13, 2012, press release, Gov. Robert Bentley stated, “I am not going to set up a state-based exchange that will create a tax burden of up to $50 million on the people of Alabama. As governor, I cannot support adding such a tax burden onto our citizens.”

In states where a health care marketplace is not offered, individuals and companies will “apply for coverage, compare plans and enroll” through www.healthcare.gov. 

It is unclear at this time exactly how this Marketplace will function, but more information about this portion of the act will be available in October 2013 through the website. 

Some political analysts predict the Marketplace could be delayed to give the federal government more time to set up the federal exchange. “When you use the health insurance marketplace, you’ll fill out an application and find out if you can get lower costs on your monthly premiums for private insurance plans,” according to www.healthcare.gov. 

“You’ll find out if you qualify for lower out-of-pocket costs. The marketplace will also tell you if you qualify for free or low-cost coverage available through Medicaid or the Children’s Health Insurance Program (CHIP),” the website explains.

And to help educate consumers on the the new Marketplace, a group of people trained to assist anyone needing help — Navigators — are currently being selected.

As far as what plans will be available through the Marketplace, that information is not yet available.

Michael Patterson, vice president of legal services for Blue Cross and Blue Shield (BCBS) of Alabama, said all insurance companies interested in providing a plan in the federal Marketplace had to submit their plans by May 3. 

Speaking during the Birmingham Business Journal’s Health Care Reform Panel Breakfast on July 11, Patterson confirmed that BCBS will be part of the exchange.

“We don’t know who the others are,” he said. “We won’t know until September.”

Patterson also explained that some insurance companies are purposefully waiting to submit plans for the Marketplace.

“Some insurance companies are holding back right now because it is anticipated the very sick are going to be the first to buy insurance the first year,” he said.

(Jennifer Davis Rash contributed)

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Self-employment

Like small businesses and nearly every other segment of the population, self-employed individuals also are set to see changes in their health insurance options through the Affordable Care Act. These changes, which are either currently in place or planned for the upcoming year, deal with individual shared responsibility provisions, individual insurance marketplaces, Medicaid expansion coverage and Medicare assessments, according to the U.S. Small Business Administration. Look for more information on these issues in an upcoming issue of this series. 

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7 key terms in the Affordable Care Act that small businesses should know

By Meredith K. Olafson 
U.S. Small Business Association

The Affordable Care Act includes new health care reform terms used to describe parts of the law that affect small businesses. Understanding what these terms mean can help both self-employed individuals and small employers better navigate the law and take advantage of reforms that are helping to lower premium costs and increase access to quality, affordable health insurance.        

Here are seven terms in the Affordable Care Act that small businesses should know.                                        

1. Affordable Insurance Exchange

Also known as the health insurance “Marketplace,” the Affordable Insurance Exchange is a new transparent, competitive insurance marketplace where individuals and small businesses can purchase affordable and qualified health benefit plans. The Marketplace for small employers, known as the Small Business Health Options Program (SHOP), and the Individual Marketplace for consumers and those who are self-employed, will open in all states Jan. 1, 2014. Enrollment begins Oct. 1, 2013. 

2. Employer Shared Responsibility

Although employers are not required to provide health coverage to their employees under the Affordable Care Act, employers of a certain size will be subject to the Employer Shared Responsibility provision of the law. Under this provision, beginning in 2015, business owners with at least 50 full-time or full-time equivalent (FTE) employees that do not offer health coverage to their full-time employees may be subject to a shared responsibility payment under the health care law. A full-time employee is generally one who is employed an average of 30 or more hours per week. Businesses with fewer than 50 full-time or FTE employees are generally not affected by these provisions.  

3. Essential Health Benefits

The Affordable Care Act ensures that health plans offered in the individual and small group markets, both inside and outside of the health insurance Marketplace, offer a comprehensive package of items and services known as essential health benefits. Essential health benefits must include services within at least 10 core categories, among them emergency services, maternity and newborn care, prescription drugs and preventive and wellness services. For more information on these requirements, visit healthcare.gov.

4. Individual Shared Responsibility

The Individual Shared Responsibility provision of the law applies to the self-employed and requires that each individual, beginning in January 2014, have basic health insurance coverage (known as minimum essential coverage) for each month, qualify for an exemption or make a payment when filing a federal income tax return starting in 2015. Individuals will not have to make a payment under these rules if coverage is unaffordable, they spend less than three consecutive months without coverage or they qualify for an exemption for several other reasons, including hardship and religious beliefs. To learn more, visit www.treasury.gov or consult with your tax professional.

5. Premium Tax Credits

When enrollment through the health insurance Marketplace starts in October 2013, consumers and self-employed individuals may be eligible for a new kind of tax credit you can use right away to lower what you pay for your monthly health plan premiums. Individuals who qualify can take the premium tax credit in the form of advance payments to lower their monthly health plan premiums starting in 2014, which can help make insurance more affordable. The value of the tax credit an individual is eligible for depends on how much income is expected to be earned. To learn more, visit healthcare.gov.

6. Small Business Health Care Tax Credits

Although the Affordable Care Act does not require that businesses provide health insurance, it does offer tax credits for eligible small businesses that choose to provide insurance to their employees for the first time or maintain the coverage they already have. To qualify for a small business health care tax credit of up to 35 percent, the business must have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000 and contribute 50 percent or more toward the employees’ self-only health insurance premiums. In 2014 this tax credit goes up to 50 percent and is available to qualified small businesses that purchase coverage in the SHOP Marketplace.

7. Wellness Programs

A wellness program is defined as a program intended to improve and promote health and fitness that is typically offered through the workplace, although insurance plans can offer them directly to their enrollees. The program allows for employees to be offered premium discounts, cash rewards, gym memberships and other incentives to participate. 

The Affordable Care Act creates new incentives to promote employer wellness programs and encourage opportunities to support healthier workplaces. To learn more, visit healthcare.gov.  

For more information and an extensive list of key terms under the health care law, consult this glossary provided by the U.S. Department of Health and Human Services and visit www.healthcare.gov.

Editor’s Note — This article first appeared on www.sba.gov and was reprinted with permission. Meredith K. Olafson is senior policy advisor for the U.S. Small Business Administration where she oversees the agency’s education and outreach efforts around health care and the Affordable Care Act.

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