A Helping Hand for Small Businesses: Health Insurance Tax Credits

The Affordable Care Act (ACA) established a tax credit to help small businesses provide health insurance for their employees. According to a new study released today from Families USA and the Small Business Majority, 3.2 million small businesses, employing 19.3 million Americans, will benefit from these tax credits. Out of the 198,910 small businesses in Illinois, 137,900 will be eligible for a small business tax credit—that’s 69.3%.

The cost of health insurance is often the prohibitive factor when it comes to coverage for small business employees. Whereas almost all businesses—99 percent—with 200 or more employees offer coverage for their workers, small business have a much lower rate: 71% of businesses with 10-24 workers, and 48% of businesses with fewer than 10 workers offered employee health coverage.

The small business tax credit is an integral part of the ACA – created in order to help small businesses provide coverage for their employees. The credit is designed to provide assistance to the smallest businesses that face the highest premiums. In order to qualify, all businesses must cover at least 50% of each employee’s health insurance.

• Businesses with up to 25 FTEs and average wages of less than $50,000 will receive credits on a sliding scale. To see if your business qualifies, go to the Small Business Majority Tax Calculator here. 

• Businesses with 10 or fewer employees and average wages of less than $25,000 are eligible for the maximum 35% tax credit.. 

• Non-profit businesses are eligible for a 25% refund. In 2014, when health care reform is in full-force, the tax credits will cover up to 50% of small businesses’ health coverage plans, and non-profits will receive a refund up to 35%. 

Unlike individuals, whom the ACA mandates to have coverage, small businesses are not mandated to provide coverage to their employees. However, if a business of 50 or more workers has an employee who receives an individual subsidy to cover the purchase of individual plan insurance, that business will be levied a fee.

What does the small business tax credit mean for Illinois small businesses and their employees? 

1,206,000 Illinoisans are employed at small businesses. Out of that number, 757,300 (62.8%) are employed at businesses that are eligible for a tax credit, making it easier for their employers to provide health coverage for them. Overall, the state will receive $634,615,800 in tax credits, or about $838 per employee, on average.

54,130 (39.3%) of Illinois small businesses will be eligible for the Maximum (35%) credit. 220,400 people will benefit from the maximum credits, or 29.1% of those employed by a small business.

The country suffers from large ethnic and racial disparities in health care, and coverage is no different in small businesses, where a disproportionate number of African American and Latino small business employees are without insurance, as compared to white, non-Latino employees. Many of these workers could benefit from the small business tax credit. In Illinois, 188,090 Latino workers are employed by small businesses. 74.5% (140,040) of those workers will benefit from small business tax credits. 118,310 African American, non-Latino workers are employed at small businesses, of which 78,170 (66.1%) will benefit from tax credits.

As with many other aspects of the Affordable Care Act, the small business tax credit is still underused and unknown. We found in our Neighborhood Stories series last year that many small business owners and chambers of commerce in the South and West Sides of Chicago had not heard of the small business tax credit. The Families USA and Small Business Majority Report released today will help to continue to publicize the availability of the credit.