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The Affordable Care Act – The Act’s Effect on Small Business (Part 7 of 8), by Barbara Halpin

Posted by Attorney Roger L. Pettit / Comments

This week I’m going to discuss some of the effects of the Affordable Care Act on small businesses.  It’s obviously still uncertain what the full ramifications will be.

 The Act exempts small businesses (fewer than 50 full-time employees) from the Employer Responsibility Provision of the Act (i.e. The Act does not require small businesses with fewer than 50 full-time employees to provide health insurance for their employees).  As a result of this exemption, it’s estimated that 96% of businesses in the U.S. will be exempt.

The Act also implements the new Small Business Health Care Tax Credit for employers with less than 25 employees.  This tax credit offers up to 35% to offset the cost of insurance for the years 2010-2013 for small business employers and 25% for small tax-exempt employers.  To receive the tax credit, a qualified employer must have fewer than 25 full-time employees or a combination of full-time and part-time (two half-time employees equal one employee for purposes of the credit).  The average annual wages of employees must be less than $50,000 AND the employer must pay at least 50% of the insurance premiums for workers.  In 2014, the small business tax credit increases to 50% and 35% for charities.

Insurers may not cancel your small employer plan because someone in the group becomes ill.  The credit is phased out as the number of full-time equivalents increases from 10 to 25 and the average employee compensation increases from $25,000 to $50,000.

For example, say there’s an auto repair shop that has 10 employees with an average of $25,000 in wages per worker and the total employee health care costs are $70,000.  In 2010, if the shop qualifies for the maximum, the tax credit would be $24,500 (35%) and in 2014, the tax credit will be $35,000 (or 50%).

Next week, in the final entry of the series, I will discuss the Insurance Exchanges set to open on October 1, 2013.  Stay tuned!

Attorney Roger L. Pettit
Attorney Roger L. Pettit

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