Utah’s small businesses that offer health care coverage to their workers could be eligible to receive significant tax credits under the federal Affordable Care Act.
But many business owners don’t know that.
Affordable Care Act tax credits:
Who qualifies? » Employers with fewer than 25 full-time-equivalent workers who earn average annual wages of less than $50,000 each. Also, employer must fund at least 50 percent of the cost of single health care coverage.
How much are they? » It works on a sliding scale — the smaller the business, the larger the credit. Through 2013, the maximum credit is 35 percent for small businesses and 25 percent for tax-exempt employers. On Jan. 1, 2014, the rate increases to 50 percent for small businesses and 35 percent for tax-exempt employers.
Source: Internal Revenue Service
A recent report estimates that more than 3.2 million small businesses — employing 19.3 million workers nationwide — could have qualified in 2011 for tax credits worth $15.4 billion or $800 per employee.
In Utah, that number stacks up to 29,280 businesses, 163,100 workers and over $125.5 million in total credits — about $769 per employee.
"For the first time, small businesses are actually getting money back right now — and will continue to do so — for offering their employees health insurance," said John Arensmeyer, founder and CEO of an advocacy organization called Small Business Majority.
Arensmeyer is among small-business supporters touting health care tax credits available under the 2010 law that conservatives have dubbed "Obamacare." Their efforts to promote its benefits come as legal arguments to overturn the law are pending before the U. S. Supreme Court.
Skyrocketing health care costs have precipitated a decline in workplace-provided health coverage. In 2000, 65 percent of the American public enjoyed employer-provided coverage, but by 2010 that number had dropped to 55 percent, according to Ron Pollock, executive director of Families USA, a Washington, D.C. group that lobbies for health-care consumers.
"This has been an increasing and very significant burden especially for small businesses," Pollock said, noting that 99 percent of companies with 200 or more workers currently provide coverage but only 48 percent of businesses that employ fewer than 10 people can afford to do so.
"The tax credit program now makes it possible for small businesses to compete with large employers," Pollock said. "This is great news for these small companies . . . when competing for talent in the job market."
Data compiled by the Lewin Group, a health-care policy research group, reveals that a majority of small business owners — 57 percent — have no clue what they’re missing.
The tax credits — currently capped at 35 percent of coverage cost — are calculated on a sliding scale with businesses that employ 10 or fewer FTEs making an average of $25,000 or less per year qualifying for the maximum return.
In 2014, the maximum credit is slated to increase from 35 to 50 percent.
The report breaks the data down even further in terms of how many of those businesses could tap the maximum credit in 2011: over 1.3 million businesses employing over 5.7 million workers nationwide, totalling $6.1 billion or $1,066 per employee. In Utah, it would have been 11,400 businesses, 46,800 workers, $48.3 million in credits and $1,032 per employee.
"These are substantial numbers," Arensmayer said.
Small business owners who provide employee health coverage can file amended returns for 2010 and 2011 to take advantage of the credits, according to David Kano, a certified public accountant based in South Ogden.
However, most of his clients don’t offer health care benefits, Kano added, "because they don’t want to spend the money."
Mike D’Avolio, a senior tax analyst with Intuit — a publicly traded software company based in California — believes the tax credits are also under-utilized due to the transition time it takes for business owners to start claiming the credits and because the law is hard to understand. But the real issue, he said, may be the sluggish economy.
"If businesses are barely breaking even,’’ D’Avolio said, ``then health insurance is not at the top of the list. In a post-recessionary time, it definitely comes down to dollars and cents."
Chris Midgley, who runs a Murray-based accounting firm specializing in federal taxation, said that only one client so far has taken advantage of the credits. "(The Act) is defined very narrowly as far as who it helps," he said. "For businesses right on the edge, it might make it more possible to provide coverage."
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