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WASHINGTON – Sen. Tom Carper (D-Del.) joined the Administration in announcing new guidance measures on the Affordable Care Act's small business health care tax credit. This announcement gives small employers information they need to claim this tax credit in 2010.

 

To make health insurance more affordable for small businesses, the new law includes tax credits for many small businesses that offer health insurance coverage to their workers.  Starting in 2010, small businesses that have fewer than 25 employees, pay average annual wages below $50,000, and pay for most of their employees' health insurance coverage may qualify for a tax credit of up to 35 percent of their health insurance expenses.  Non-profit organizations may qualify for a tax credit of up to 25 percent of their health insurance expenses.  The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019. As many as 14,000 Delaware businesses might benefit from this tax credit. 

 

The Administration's new guidance measures addresses small business questions about which firms qualify by clarifying that a broad range of employers meet the eligibility requirements, including: 

 

o   Employers that pay for a portion of their employees' health care costs through a broad range of contribution arrangements. 

o   Religious institutions that provide coverage through denominational organizations; 

o   Certain small employers that cover their workers through multiemployer health and welfare plans; and 

o   Includes the one-page form (Form 8941) and instructions used to claim the credit for tax year 2010 – both are now available at www.irs.gov

 

"Many small business owners in Delaware struggle to secure affordable, quality health care for themselves and their employees, particularly during this difficult economic period," said Sen. Carper. "Available immediately under the Affordable Care Act, these tax credits will help small businesses ease their health care insurance costs and these new guidance measures will make it easier for small businesses to take advantage of these significant benefits. As this Administration and Congress work to make health insurance more affordable and accessible for all Americans, it's important that small businesses are provided with the guidance and information they need to properly and easily provide coverage for their employees. I encourage all small businesses to learn more about this opportunity."

 

To ensure that small businesses know more about the credit, small business owners can find information on the internet. WhiteHouse.Gov, HealthCare.Gov, and IRS.Gov all feature special sections on the credit, including tax tips, detailed frequently asked questions and a worksheet to help small business owners determine whether they qualify. 

             

Facts About The Small Business Health Care Tax Credit 

 

.Available Immediately.  Enacted as part of the Affordable Care Act, the credit was effective January 1, 2010.  As a result, small businesses currently providing health care for their workers receive immediate help with their premium costs. 

 

.Broad Eligibility.  The Council of Economic Advisors estimates that 4 million small businesses are eligible for the credit if they provide health care to their workers.  

 

.Substantial Benefit.  The credit is worth up to 35 percent of a small business's premium costs in 2010 and in each of 2011, 2012, and 2013.  In 2014, this rate increases to 50 percent. 

 

.Firms Can Claim Credit for Up to 6 Years. Firms can claim the credit for 2010 through 2013 and for any two years after that. 

 

.Non-Profits Eligible.  Tax-exempt organizations are eligible for a 25 percent tax credit in 2010 and in each of 2011, 2012, and 2013.  In 2014, this rate increases to 35 percent. 

 

.Gradual Phase-Outs.  The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.  

 

.Premium Cost Eligibility.  To avoid an incentive to choose a high-cost plan, an employer's eligible contribution is limited to the average cost of health insurance for small businesses in that state. 

 

.Dental and Vision Coverage Qualify.  Small businesses can receive the credit not only for traditional health insurance coverage but also for add-on dental, vision, and other limited-scope coverage. 

 

.Employers Can Choose the Most Favorable Method of Determining Hours Worked.  Because the tax credit's matching rate is highest for employers with 10 or fewer full-time equivalent employees (FTEs), the number of hours worked is an important factor in calculating the credit.  Employers can choose among three different methods of determining hours to minimize their bookkeeping duties while receiving the maximum tax credit for which they are eligible.  Employers can look at actual hours of service, or can use simple rules of convenience to estimate hours based on total days or weeks of service. 

 

The Small Business Health Care Tax Credit: Four Cases 

 

Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010 

 

Main Street Mechanic: 

.         Employees: 10 

.         Wages: $250,000 total, or $25,000 per worker 

.         Employer Health Care Costs: $70,000 

 

2010 Tax Credit: $24,500 (35% credit) 

2014 Tax Credit: $35,000 (50% credit) 

 

Example 2: Restaurant with 40 Part-Time Employees Gets $28,000 Credit for 2010 

 

Downtown Diner: 

.         Employees: 40 half-time employees (the equivalent of 20 full-time workers) 

.         Wages: $500,000 total, or $25,000 per full-time equivalent worker 

.         Employer Health Care Costs: $240,000 

 

2010 Tax Credit: $28,000 (35% credit with phase-out) 

2014 Tax Credit: $40,000 (50% credit with phase-out) 

 

Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010 

 

First Street Family Services.org: 

.         Employees: 9 

.         Wages: $198,000 total, or $22,000 per worker 

.         Employer Health Care Costs: $72,000 

 

2010 Tax Credit: $18,000 (25% credit) 

2014 Tax Credit: $25,200 (35% credit) 

 

Example 4: Manufacturing Company with 12 Employees Gets $14,700 Credit for 2010 

 

Acme Air Conditioning, LLC: 

.         Employees: 12 

.         Wages: $420,000 total, or $35,000 per worker 

.         Employer Health Care Costs: $90,000 

 

2010 Tax Credit: $14,700 (35% credit with phase-out) 

2014 Tax Credit: $21,000 (50% credit with phase-out)