CPA & Business Advisory Blog

Effects of Health Care Reform on Small Businesses

The Patient Protection Act, as amended by the House Reconciliation Act, provides a temporary sliding-scale small employer tax credit to help offset the cost of employer-provided coverage. Generally, a small employer is one with fewer than 25 employees and average annual wages of less than $40,000.

In 2011 through 2013, eligible employers may qualify for a tax credit for up to 35 percent of their contribution toward the employee’s health insurance premium. In 2014 and beyond, eligible employers who purchase coverage through a state exchange may qualify for a credit for two years of up to 50 percent of their contribution. Qualified tax-exempt employers would be eligible for a reduced credit. Salary reduction contributions are not counted.

Impact

Employers with 10 or fewer employees and average annual wages of less than $20,000 would be eligible for the full credit.

Comment

Qualified small businesses would be able to purchase insurance for their employees through state-based web portals to be known as  mall Business Health Options Programs (SHOP). These insurance exchanges would allow small businesses to pool together to spread their financial risk.

Cafeteria Plans. The Patient Protection Act relaxes the cafeteria plan rules to encourage more small employers to offer tax-free benefi ts to employees, including those related to health insurance coverage. It does so by carving out a safe harbor from the nondiscrimination requirements for cafeteria plans for qualifi ed small employers.

SourceCCH, a Wolters Kluwer business
 

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