Important Small Business Health Care Incentives
Small businesses get a break under the Health Care and Education Reconciliation Act of 2010 and Patient Protection and Affordable Care Act of 2010. Beginning in 2010, the health care reform package provides a temporary sliding-scale small employer tax credit to help offset the cost of employer-provided coverage. Generally, a qualified small employer is one with no more than 25 employees and average annual wages of no more than $50,000. The qualified small employer must contribute at least one-half of the cost of health insurance premiums for coverage of its participating employees.
In 2010 through 2013, qualified small employers may qualify for a tax credit for up to 35 percent of their contribution towards the health care premium. After 2013, small employers that purchase coverage through an insurance exchange may qualify for a credit for two years of up to 50 percent of their contributions. Salary reduction contributions are not counted.
Small employers with 10 or fewer employees and average wages of less than $25,000 would be eligible for the full credit. The credit is reduced for small employers with 11 to 25 employees and average wages of $26,000 to $50,000. The wage amounts are indexed for inflation.
The health care reforms also relax the Section 125 cafeteria plan rules to encourage small employers to offer tax-free benefits to employers, including those related to health insurance coverage. It does so by carving out a safe harbor from the nondiscrimination requirements for cafeteria plans for qualified small employers.
