How the Health Care Bill Will Affect Small Business

2012 – Small Business

For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. However, this depends on a variety of factors, such as the number of employees the business has.

The new health law establishes small business tax credits; creates health insurance exchanges; ends price discrimination against small businesses; promotes entrepreneurship through health care security; reduces the hidden tax on small business employees with health insurance; and, reduces premiums for small businesses.

• A key component of health care reform -- provides tax credits to small businesses. This helps them afford the cost of covering their workers with a health insurance plan.

The tax credit is effective immediately. It can cover up to 35 percent of the premiums a small business pays to cover its workers. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost.

• The Congressional Budget Office estimates that the new tax credit will save small businesses some $40 billion over the next ten years.

• For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums.

• Small business tax credit: A temporary small business tax credit is available for some firms who provide qualified health coverage. However, the credit puts small...