Health care tax credit available for small businesses

By Cherry Sokoloski
North Forty News

There is some anxiety in the business community about health care reform. Business owners who offer health care insurance to their employees wonder if premiums will go up. They are also asking how to apply for the small business tax credit that's available this year. Some ask, can nonprofits also receive a credit?

Business people who do not offer health care to their employees, including those who have had to scrap the benefit because of increased premium costs, worry about whether they will be penalized by the federal government.

As far as premiums are concerned, Peter Trozan of Trozan Insurance Agency doesn't expect much change other than the "normal" rate increases that have been occurring for many years.

"We may see 3 to 4 percent on top of the normal rate increases," said Trozan, whose firm specializes in health insurance.

Those normal rate increases have been 15 to 20 percent annually in recent years, Trozan noted.

Credit for 2010

Thousands of small businesses in Colorado that offer health insurance to their employees will qualify for a tax credit this year under the Patient Protection and Affordable Care Act.

The idea behind the tax credit is to encourage more small businesses to offer health insurance to employees, thereby reducing the number of uninsured citizens. Small business owners can receive a tax credit amounting to as much as 35 percent of the premiums paid by the business.

One business that anticipates a tax credit is Wellington Eye Care, owned by Dr. Larry Eklund. He has five full-time-equivalent employees, and their average wages are a little over $25,000 per year. He pays 50 percent of their health insurance premiums. As a result, Eklund expects to qualify for a credit of close to 35 percent of his share of the premiums.

The tax credit "will allow us to expand in terms of patient care and the number of jobs we can bring to Wellington," Eklund commented. "It's a welcome way to reinvest into our practice."

Here's how the tax credit works:

The tax credit is retroactive to Jan. 1, 2010. That means that employers can figure the credit based on premiums paid throughout this year. The credit is an income tax credit and can be claimed on the 2010 return.

To be eligible, a business must have no more than 25 FTE employees. The average annual wage must be $50,000 or less. The employer must contribute at least 50 percent of the total premium costs. Owners and their relatives are not counted as employees. For the most part, seasonal workers are also not counted.

The maximum tax credit for 2010 under the new law, amounting to 35 percent of the employer's contribution, is available to firms with 10 or fewer employees and average annual wages of less than $25,000. As the number of employees and the average wage go up, the tax credit goes down.

Web sites that can help employers figure their potential tax credits include www.colorado.gov/healthreform, www.smallbusinessmajority.org and www.irs.gov/pub/irs-utl/3_simple_steps.pdf.

The 35 percent maximum tax credit applies to tax years 2010 through 2013. In 2014, when state insurance exchanges are in place, eligible small businesses obtaining coverage through the exchanges will receive tax credits of up to 50 percent of the employer's contribution, again depending on the number of employees and the average wage. This credit will be available for two years.

For nonprofits, there are also credits for providing health insurance to employees. Tax-exempt small businesses meeting the requirements outlined above can receive credits of up to 25 percent of the employer's contributions.

New mandates

The mandated benefits for all health insurance plans, effective for all renewals or new policies beginning Sept. 23, 2010, include the following: covering children up to age 26, no lifetime limits on essential health benefits, no preexisting condition restrictions on children under 19 and no retroactive coverage rescissions except in cases of fraud.

New policies will be required to offer preventive health services with no deductible or co-pay from the patient. This is the change that's most expensive for insurance companies, Trozan said. However, he added, the insurance industry has already moved in that direction for small-group plans, so there should be little impact on those premiums.

Beginning in 2014, employers with more than 50 employees who do not offer health insurance will be penalized by the government. However, this applies only if at least one full-time employee receives a health insurance subsidy (called a premium tax credit) from the government.

Also in 2014, firms with more than 200 employees will be required to automatically enroll employees in their health insurance plans, although employees may opt out of coverage.