Federal and state health care interactions have many small business owners unsure where they stand. As changes kick in, health and insurance professionals are telling those business owners to pay attention; there may be benefits to reap.
“The option right now for the small business has to do with the tax credit,” said James Stirling, CEO of Stirling Benefits Inc. in Milford. “Their local insurance broker should be well informed and they should be talking with them. This is where an informed broker can really prove valuable.”?Stirling said if a small business finds that its broker cannot answer the questions about health care reform, it”™s time to find a new one.
“This is a major issue right now and you want someone who is informed,” said Stirling “Find someone that is a member of the trade organizations.”
Stirling pointed to the The National Association of Health Underwriters and the Connecticut Benefit Brokers as organizations that have put a lot of time into health care reform information for businesses.
The tax credit for small businesses that will be available this year is for employers. It could cover up to 35 percent of employer costs.
According to the White House, the fraction of small firms offering health insurance has been declining in recent years. From 2002 to 2008, the amount of businesses with three to nine employees offering health insurance to their workers declined from 58 percent to 49 percent.
“Employers who are paying attention want to know how I can get the tax credit,” said Stirling.
The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers. It is generally available to employers that have fewer than 25 full-time-equivalent employees and paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of full-time employees, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers. This is where Stirling suggests small business keep their eyes and ears open.
The maximum credit goes to smaller employers, those with 10 or fewer full-time-employees paying annual average wages of $25,000 or less.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.
“The agency”™s clients still must be convinced that the new legislation will work for them,” said Matt Fair, partner at Pierson and Smith in Norwalk, an insurance provider. Fair said he expects employers will have to shoulder an increase in costs, so if they can take advantage of the tax credit it”™s more of a situation of “must” rather than “should.”
“For a lot of people it”™s a struggle to pay these costs,” said Stirling. “For them this credit can be huge.”
The IRS will be using postcards to reach out to millions of small businesses that may qualify for the credit, hoping to encourage owners to take advantage of the credit if they qualify.
“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said Doug Shulman, commissioner of the IRS, in a prepared statement. “We urge small businesses and tax-exempt employers to look closely at this important tax break, which is already effective, to see if they qualify.”
The critics of the credit argue that it is not necessarily so great because it is offset by a partial loss of the original deduction.
“Most people would rather get a tax credit than a deductible for the same amount,” said Stirling.
He said that moving forward, larger companies are going to have to evaluate family incomes, something they”™ve never had to do before.
“That”™s going to affect plan design,” said Stirling. “Eventually the reform could equalize the benefits between large and small employers.” He said that eventually, small employers will be able to use an exchange to buy their insurance at rates competitive with big companies.
