New Small Employer Tax Credit for Small Businesses

The new Health Care Reform Bill has the potential to radically change the health insurance market over the next few years (some of it will actually be positive, while some will be negative). We’ve been actively studying this new bill and have attended a number of meetings (both online and in person), trying to digest what it all may mean and how it may work. The devil, as they say, is in the details, which have not yet been “fleshed out.” However, there are a few things we know now, and we’re anxious to keep our clients informed as best we can. One of the items that falls into the “good news” column is a tax credit for small employers.

We’ll pause here and quote liberally from our pal Jason Blumer, our CPA/financial guru because he is far more qualified to talk taxes with you! He maintains a very helpful blog at

To give businesses a little more heads up, the IRS is sending out postcards to let the small businesses across the county know that they may be able to claim some credits on their 2010 (and 2011, 2012 and 2013) tax returns. Real dollars in your pockets.
Here are some details:
1. To get the tax credit, the small business employer must cover half of the cost of the employee’s health care costs.
2. The tax credit is 35% of the employer’s contributions to the employee’s health insurance costs (will be 50% after 2013).
3. Health insurance costs for 2% shareholders of the business and owners of sole proprietorships do not count.
4. Small business employers with less than 10 employees will get all of the credit, as long as the average wage of all employees is less than $25,000 per year. (Note: This is $25,000 per “full time equivalent,” which is per 40 hours of work each week, which could be 1 full time employee or two employees working 20 hours. Yeah it’s a bit complicated…)
5. The complicated credit is calculated on a sliding scale. The credit starts at the amounts mentioned in #4 above and totally phase out when the employee count reaches 25, and the average wage of all employees reaches $50,000 per year.

Combine this credit with the benefits of the HIRE act, and you could get some real take-home dollars from hiring employees and giving them health coverage in 2010. Don’t worry, rich people are going to pay for all of this!

AC Forrest remains committed to staying on top of the ongoing changes to your health insurance and helping our clients navigate them effectively. If you have specific questions or if you’d like a free health insurance consultation, we invite you to contact us.