A new tax credit is available to help small-business owners provide health insurance to their employees, but certain stipulations are limiting the number of those who can reap its benefit.
The Health Care Tax Credit is an option for eligible businesses beginning this tax year and can be claimed for two consecutive years. The maximum credit is 50 percent of healthcare premiums paid for small-business employers and 35 percent of premiums paid for tax-exempt small employers like nonprofits, according to the Internal Revenue Service.
The IRS is urging all small-business owners in the state to explore whether they qualify for the tax credit.
There are benefits to those who do. Employers who don’t owe taxes during the year can carry the credit back or forward to other tax years. And since the amount of health insurance premiums is greater than the total credit claimed, eligible employers still are able to claim a business expense deduction for any premium costs that exceed the credit amount, according to the IRS. Also, the credit is refundable for tax-exempt employers.
But not all business owners can take advantage; there are several criteria they need to meet to be eligible. They must have fewer than 25 employees; cover premiums on behalf of workers enrolled in a health plan offered through the Small Business Health Options Program (SHOP) Marketplace, or qualify to be exempt from that requirement; and pay a uniform percentage for all employees that equals at least 50 percent of the insurance premium cost.
In addition to other stipulations, the average annual wages paid to full-time-equivalent employees must be less than $51,000, according to the IRS.
While the tax credit can help some Connecticut employers, many are ineligible to claim it because of that salary requirement, according to Jennifer Herz, assistant counsel at the Connecticut Business & Industry Association. CBIA is the state’s largest business trade group and frequently advocates for tax policy and legislation that reduce the cost of doing business.
“There aren’t a ton of employers who have been able to take advantage of it,” she said, since many pay workers an average annual salary of more than $51,000. Also, many small-business owners in the state have more than 25 employees, which makes them ineligible.
But for those who qualify, she said, claiming the credit is worthwhile. “It’s a good thing for employers to have this available to them,” she said.
Herz cautioned that business owners who use the credit must keep in mind that it is not available long-term. With its two-year maximum, she said, “While it’s good initially, the effect of it doesn’t really last too long.”
The cost of providing health insurance consistently ranks among Connecticut business owners’ top concerns. In CBIA’s 2014 Survey of Connecticut Businesses released last month, 16 percent of employers said it was their biggest worry. It ranked third behind the state and national economies, respectively, and is a bigger concern than the tax burden in the state.
Most business owners in the state provide benefits like health insurance to their workers, Herz said, but the escalating expense makes it increasingly difficult.
Adding to their stress, she said, Connecticut is among the top five states when it comes to health benefit mandates, and each time lawmakers pass another mandate it adds to employers’ financial burden.
“The costs continue to rise and that puts a lot of pressure on them,” she said. “It’s a top concern for Connecticut employers.”