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Health Care Tax Credits

By Calvin W. Goings, Regional Administrator, Region 10
U.S. Small Business Administration

Today, many small businesses across America struggle to provide health benefits to their employees. On average, small businesses pay about 18 percent more than large businesses for the same health insurance policy. The Affordable Care Act helps level the playing field by lowering costs for small businesses and increasing their bargaining power. At the same time, small business owners will have the flexibility to make choices they believe are right for their business and their employees.

Starting in 2014, firms with up to 100 workers can pool their buying power and reduce administrative costs by purchasing insurance through a health insurance exchange. And the Congressional Budget Office predicts that, thanks to the Affordable Care Act, premiums in the small group insurance market will decrease by up to 4 percent by 2016.

To make health insurance more affordable for small businesses, the new law also includes tax credits for many small businesses that offer coverage to their workers. Small businesses that have fewer than 25 employees, pay average annual wages below $50,000, and pay for most of their employees’ health coverage may qualify for a tax credit of up to 35 percent of health expenses. The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019. Both for-profit and nonprofit organizations may qualify for the tax credit.

The tax credit is already having a substantial impact. Insurance companies have used the tax credit to encourage more businesses to provide benefits.

Find answers for small business questions about which firms qualify and the one-page form (form 8941) with instructions for claiming the credit for tax year 2010 at www.irs.gov.