Clark County small businesses could get back up to 35 percent of the money they pay into health insurance premiums this year. But many owners are so focused on their daily operations — or so overwhelmed by the complexity of federal health care reform — that they have not yet looked into what the Patient Protection and Affordable Care Act means for them.
The law, passed by Congress and signed by President Obama in March, is mind-numbingly complex. The bulk of it doesn’t take effect until 2014. But here’s what small-business owners need to know now: An employer that pays annual health insurance premiums of $10,000 per worker could get back up to $3,500 in tax credits for each covered employee.
o It costs small businesses an average of $350 more per worker to provide health insurance than large businesses.
o In 2009, 46 percent of companies that employed three to nine workers offered health insurance.
o Nearly all businesses with 50 or more employees offer health insurance to their workers.
o 4 million U.S. businesses, including 110,000 in Washington, qualify for tax credits under the Patient Protection and Affordable Care Act.
o It costs small businesses an average of $350 more per worker to provide health insurance than large businesses.
o In 2009, 46 percent of companies that employed three to nine workers offered health insurance.
o Nearly all businesses with 50 or more employees offer health insurance to their workers.
o 4 million U.S. businesses, including 110,000 in Washington, qualify for tax credits under the Patient Protection and Affordable Care Act.
To be sure, not all small employers will be eligible for a tax credit. And it takes some time and a little fortitude to figure out a law that doesn’t treat all businesses the same.
Complex landscape
Small employers such as Vancouver-based On Line Support Inc., which are focused on growing and staying competitive, are the most likely to benefit from the tax credits.
President and CEO Eric Olmsted employs eight people, including himself, and pays 100 percent of employees’ health insurance, including medical, dental and vision. Employees are responsible for the cost of covering their families. Just this year, Olmsted said, his company had to raise deductibles and co-pays to offset increases in health insurance costs.
If his employees earn an average wage of less than $50,000, he should be able to qualify for tax credits. But Olmsted, who is skeptical about the health care reform law, said he has not researched how it will affect his business.
“Truthfully, it probably hasn’t been the focus that it should be for me,” Olmsted said. “In this economy, we’re just focusing on growth and just keeping up with business.”
Kristie Smith, director of branch operations for Vancouver-based Barrett Business Services Inc., has encountered many small businesses facing the same dilemma. Barrett Business Services provides a comprehensive range of human-resource consulting services to small- and medium-size companies, including on the issue of employer-based health insurance.
Beginning this year, small businesses may be able to qualify for tax credits if they offer health insurance to their workers. Here are the rules set out under the Patient Protection and Affordable Care Act:
o To be eligible for a tax credit, a small employer must contribute at least 50 percent of the insurance premiums for their employees at the single (employee-only) coverage rate.
o The smallest companies with the lowest wages — those that employ 10 or fewer workers who earn an average wage of less than $25,000 — are eligible for the full 35 percent tax credit. (The maximum credit is 25 percent for nonprofits).
o As the number of employees and their average wages rise, the tax credit is reduced on a sliding scale. Employers with fewer than 25 workers and average wages of less than $50,000 are eligible for at least some tax credit.
o The law allows employers to count two part-time workers as one full-time worker. That means a small business with mostly part-time employees may be able to qualify for the tax credit.
o Small businesses can claim the credit starting with the 2010 income tax return they file in 2011.
“We have had to become the resident expert for a couple thousand clients,” Smith said of how the law has affected Barrett’s operations.
She views the small-business tax credit with a mixture of hope and caution. For profitable small businesses, the credits are an attractive lure, she said. Conversely, those that are struggling to survive will find it difficult to justify adding or restoring a health care plan. That’s especially true when you consider the historic rise in the cost of premiums. The benefits consulting firm Mercer estimates that nationally, the average health benefit cost per employee has been rising at about 6 percent for each of the past five years.
Dellan Redjou, owner of Smokey’s Hot Oven Pizza, with two locations in the Vancouver area, has first-hand experience with rising premiums. She employs 35 full-time and part-time employees. In the past, she has tried to offer her employees health insurance, but it has proved to be unaffordable. She does, however, help pay for health care for a few full-time employees who’ve been with her pizza place for a long time.
Redjou said she’s been too busy running her business and tending to her family to figure out whether her company is eligible for a tax credit. The health reform law is complex, she said, and she doesn’t have an army of experts to help her break it down.
“My human resources department is me,” she said. Redjou said she generally favors extending health insurance to more people but wishes the federal government had found a way to tinker with existing programs rather than remodeling the entire system. Still, she said, she’s keeping an eye on the health reform law and the incentives it offers small employers.
Reward, don’t punish
Beyond tax credits, the law has another plus for small-business owners: Unlike how it treats large employers, the law doesn’t threaten to penalize small businesses if they refuse to provide health insurance to their employees. Instead, it deploys the tax credit program as an incentive, aiming to encourage small businesses that already help pay for their workers’ health care to continue to do so and to prod those that don’t to make it happen.
“The good news,” Smith said, “is that the scope of the reform act really does provide more carrot than stick to small-business owners.”
And there are tools available to help small businesses determine whether they’re eligible for a tax credit. An Internet connection doesn’t hurt. For example, the website of the Internal Revenue System — www.IRS.gov – has more information about the credit and how to claim it. Included in that information is a three-step process for small employers to follow to calculate whether or not they qualify for a credit.
Beginning this year, small businesses may be able to qualify for tax credits if they offer health insurance to their workers. Here are the rules set out under the Patient Protection and Affordable Care Act:
o To be eligible for a tax credit, a small employer must contribute at least 50 percent of the insurance premiums for their employees at the single (employee-only) coverage rate.
o The smallest companies with the lowest wages -- those that employ 10 or fewer workers who earn an average wage of less than $25,000 -- are eligible for the full 35 percent tax credit. (The maximum credit is 25 percent for nonprofits).
o As the number of employees and their average wages rise, the tax credit is reduced on a sliding scale. Employers with fewer than 25 workers and average wages of less than $50,000 are eligible for at least some tax credit.
o The law allows employers to count two part-time workers as one full-time worker. That means a small business with mostly part-time employees may be able to qualify for the tax credit.
o Small businesses can claim the credit starting with the 2010 income tax return they file in 2011.
Most of the changes under the health reform law, which aims to expand health insurance to 32 million Americans, won’t take effect until 2014. But its potential impact on small businesses is extensive. The tax program, for example, isn’t the only change small employers will see from the health reform law. Beginning in 2014, state health insurance exchanges will be available, creating a new marketplace aimed at enabling employers to purchase affordable health care for their workers. Small employers will be able to review comparable information on the costs and benefits of insurance plans so they can choose the plan that best suits their workers. The idea is to reduce the administrative burdens on small businesses that lack the resources and time to research health coverage.
What the health reform law will mean to small companies will depend a lot on each company’s individual situation, said Smith, the Barrett Business Services executive. “What we all hope for is that it works,” she said. “I don’t think anyone can argue against the fact that our current system is in serious need of reform.”
