To entice small businesses to grant insurance or to continue to grant health insurance to its employees, ObamaCare is offering a 35% tax credit now. If a business has up to 10 employees who have average annual wages of less than $25,000 and where the employer pays at least 50% of the health care premium costs, they are eligible for the 35% tax credit. The tax credit begins to go down with each additional employee. Once the 26th employee is hired, the tax credit disappears.
To sweeten the deal, ObamaCare will increase the tax credit to 50% beginning in 2014. The conditions for eligibility remain the same.
A small business employer may consider this a good deal and buy into ObamaCare; however, the tax credit will be dropped at the end of 2015 unless Congress extends it. This is why small businesses need to be aware that it is a carrot on a stick approach. Once a business buys into ObamaCare, it will be difficult to drop it and it could be a financial burden.
At least small businesses have one advantage over large businesses with 50 or more employees. Small businesses are exempted from the financial penalties that will be imposed on large companies. The large companies will have to pay a $2,000 penalty for every full-time worker who gets his/her health insurance through the government exchanges excluding the first 30 employees. This is why some companies have cut back on their employees to 49 workers or limit the working hours to 29.5 hours per week. They escape the penalty.
Yet small businesses must be aware there is no guarantee of tax credits beyond 2015. This is why small businesses must look at their profit margins, the value of their workers and the expense of health insurance under the new law and decide to offer health insurance or drop it. If health insurance is dropped by businesses, their workers can take advantage of the wonderful insurance offered through the exchanges. Workers can then choose which plan suits their pocketbooks.