Not All Small Businesses Eligible for New Health Tax Credit

5:41 PM, Jan 27, 2011   |    comments
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Gannett Washington Bureau

WASHINGTON - Small businesses can get a new federal tax credit this year if they offer health insurance to employees, but it's not clear how many firms qualify.

The Obama administration estimates up to 4 million businesses qualify for the Small Business Health Care Tax Credit, which covers up to 35 percent of premium costs for firms with fewer than 25 employees if the employer pays at least half the cost of premiums and a has a payroll below $1.25 million. The tax credit will increase to 50 percent beginning in 2014.

In New York, about 335,000 small businesses may qualify for the tax break, according to Democratic Sen. Chuck Schumer.

"This credit is too good to miss,'' Schumer told reporters in a conference call Wednesday. "For hundreds of thousands of New York employers, the tax break could mean the difference between hiring an extra worker and buying new equipment, or maintaining the status quo.''

But some congressional Republicans and business trade groups, such as the National Federation of Independent Business, said the tax credit's expected benefits are overstated.

NFIB estimates only 35 percent of firms with fewer than 25 employees qualify for the tax credit if all the qualifiers - such as the requirement that employers pay at least half the cost of premiums - are taken into account.

"Most of our members are telling us they are not getting anything,'' Mike Elmendorf, NFIB's New York director, said in an interview Thursday. "We think it's going to help some people, but not many people.''

NFIB has set up a website for small-business owners to find out if they qualify.

Schumer said he's writing tax preparation firms to ensure they inform their business clients about the tax credit. The form for applying for the tax credit is one page.

In two hypothetical examples, Schumer said:
- The owner of a mechanic's shop with ten employees, average annual wages of $40,000 and $70,000 in annual health care expenses would save $24,500 with the new credit.
- A day care center in Pittsford with 40 part-time employees, average annual wages of about $20,000 and about $80,000 a year in health care expenses would save $28,000.

The credit covers all health care expenses, including dental and vision.

Two real-life small-business owners told a House committee this week they don't qualify for the tax credit and see the health care reform law enacted last year as an impediment to growth.

The Republican-controlled House Ways and Means Committee held the hearing to point out flaws in the new law. On the other side of the Hill, the Democratic-controlled Senate Health, Education, Labor and Pensions Committee held a hearing Thursday to highlight the consumer benefits of the new law.

At the House hearing, Joe Olivo, president and co-owner of Perfect Printing in Moorestown, N.J. said the new law means his 45-employee firm will have to provide health insurance if it grows to 50 employees.

Olivo said it might be less expensive for him to pay a federal penalty than continue offering health insurance. In response to the new law, his insurer dropped the policy Olivo had offered employees because it didn't provide enough preventive care. And because he has more than 24 employees, his firm doesn't qualify for the new health care tax credit.

Scott Womack, owner of Womack Restaurants, which operates 12 IHOP restaurants in Ohio and Indiana, said the only economically viable option for his firm is to pay the $2,000 per-employee penalty for not offering health insurance, but that would eliminate 60 percent of his company's profits. Womack testified on behalf of the U.S. Chamber of Commerce and advocated repealing the provision in the new health care law requiring employers to offer insurance to their workers.

Democratic Rep. Joe Crowley of New York City, a member of the House Ways and Means Committee, issued a statement Thursday saying the new tax credit will benefit small businesses.

"In fact, thanks to this tax credit, more small businesses are now offering health coverage to employees,'' Crowley stated. "And, the benefits are widespread - four out of five of America's small businesses qualify for this tax credit.''

Gannett ContentOne - Washington, D.C.

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