Does Your Business Really Qualify for a Health Care Tax Credit?

Tax credit calculator can help you find out.

An understanding of how the recent healthcare legislation will impact small businesses down to the fine-print details is still unfolding. We recently learned, for example, that language in the legislation will require businesses to track every purchase they make, and if the total to a single vendor in one year exceeds $600, you’ll need to send a 1099, even if the vendor or supplier is a corporation.

Another area business owners are trying to get their arms around is their eligibility for the much-touted tax credit. It’s intended to help small businesses offset the cost of providing health insurance by up to 35 percent. The real devil is in the “up to” details.

Let’s make sure we understand one detail from the beginning: it’s a tax CREDIT. In other words, it can only be used to offset actual tax liabilities. If you’ve had a bad year and won’t be paying any taxes, you won’t get the credit. Know any small businesses that have struggled through unprofitable years recently? I’m sure you do. So, the businesses that might most need some relief from the cost of providing health insurance won’t be eligible.


Another detail: If you pay your employees decent wages, you may have made yourself ineligible for the full tax credit, or any tax credit, for that matter. Companies with average payrolls of over $50,000 won’t qualify at all, for example.

Another detail: It’s not enough to offer health insurance and pay some portion of it. To qualify, you must cover at least 50 percent of the cost based on the single rate.

Another detail: If you’re a growing business, you may have too many employees to be eligible, even if you really are still a small business by any other definition. According to the IRS website: A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible). The maximum credit goes to employers with 10 or fewer FTEs and paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Another detail: Non-employers—the nearly 25 million self-employed—will not qualify at all, yet still be required to purchase insurance.

The legislation has passed, and now we need to deal with it. I’m concerned though that many small business owners keep hearing that the cost for most small businesses will be offset in some way by the tax credit, which is the general message that’s coming out of DC. As you can see, that’s not the case.

If you haven’t taken the time to understand how the legislation impacts your business, visit The information is hotlinked on the homepage. In addition, the NFIB has published a tax credit calculator that helps small businesses estimate how much of a tax credit they may qualify for, or whether they are eligible at all. Obviously, the tax calculator is provides a starting point—you need to sit down with your accountant or tax professional for specific advice relating to your business situation.


About Smart Companies Thinking Bigger®

Kelly Scanlon is the owner and publisher of Thinking Bigger Business Media. She recently finished a term on the national board of directors of the National Association of Women Business Owners, and was the national chair from 2010-2011. An advocate for small business owners, Kelly sits on numerous boards and committees to advocate on behalf of small business owners. She has won several awards for her advocacy. Among them are the 2011 United Nations NGO Positive Peace Award on behalf of Kansas City area small business owners, the U.S. Small Business Administration's Region VII Women's Business Champion of the Year in 2009, and the Women in Business Advocate of the Year from the State of Kansas in 2006. In 2002, she won the SBA's Region VII Small Business Journalist of the Year Award (Missouri, Iowa, Nebraska, Kansas). Whatever your business stage—aspiring, startup, established, mature—Thinking Bigger Business Media has the resources you need to grow to the next level. We are a resource organization dedicated to providing the strategic, "how-to" information small business owners need to become more productive and more profitable. We also provide information that helps owners connect with resources within the business community that can help them grow. We deliver that information through a variety of media products and other channels easily accessible to business owners.
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