Small Business Owners And Health Insurance

Posted on December 9, 2010


Last Thursday, December 2, the IRS announced new tax breaks for small business owners.

As part of the Affordable Care Act that was passed in March, employers will now be able to deduct large percentages of the heath care premiums they pay for their employees. According to the IRS, “The small business health care tax credit is designed to encourage both small businesses and tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have.”

The tax credit allows small business owners to deduct 35% of health care premiums paid to employees throughout the year and tax-exempt organizations to deduct 25% of health care premiums paid to its workers. Those numbers will jump to 50% and 35%, respectively, in 2014. This credit will be available from 2010-2013 “and for any two years after that.”

Many employers will fit the federal requirements, and business owners should check with the IRS to see if they meet the federal guidelines. According to the IRS, “In general, the credit is available to small employers that pay at least half of premiums for single health insurance coverage for their employees.”

Companies with more than 25 employees and average salaries of $50,000+ per year cannot take advantage of the tax break, but since the credit also focuses on the number of Full-Time Equivalent employees, rather than actual employees, many businesses that rely on part-time labor will also be eligible for the credit.

The Small Business Administration sees these new laws as a boon to entrepreneurship. According to the organization, “[The Affordable Care Act] outlaws discrimination against those with pre-existing conditions, giving more Americans the ability to break out of ‘job lock’ and start their own companies. The new law also prohibits insurance companies from dramatically increasing premiums for a small business just because one worker gets sick.”

For more information on the act, please visit the IRS website.