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Health Care Reform: Tax Changes for Small Businesses

By Tanya Roth, Esq. on April 05, 2010 | Last updated on March 21, 2019

Healthcare laws and health insurance have long been areas of contention for small businesses. The expense of issuing health care insurance would often be the factor small businesses would consider before hiring a permanent employee versus a temporary contract employee.

Now, healthcare laws have changed and reform has arrived.

And the Obama Administration promises to take the pain out of healthcare insurance for small businesses.

Two pieces of legislation were passed to that extent: The Patient Protection and Affordable Care Act (PL 111-148) and the Health Care and Education Reconciliation Act of 2010 (PL 111-152). The budget reconciliation process essentially amended certain provisions of the first act and added some new provisions of its own.

The thing about budget reconciliation is this: The budget reconciliation act must deal with budgetary issues. As such, it's no surprise to anyone that the new health care laws will have an impact on the Internal Revenue Code. But how does all this shape up for the business owner? Let's have a look:


  • Employers must offer coverage. After December 31, 2013, certain large employers who fail to offer adequate health coverage for their full-time employees could face penalties. This applies to employers who have at least 50 full time employees within the preceding calendar year.
  • Tax credits for small businesses. For the 2010 tax year up until the 2013 tax year, the credit will gradually be phased in. Businesses with fewer than 26 employees and average annual wages under $50,000 will eventually be eligible for credit in an amount up to 50% of nonelective contributions that the business makes, on behalf of its employees, for insurance premiums. Here's the good news for tax exempt nonprofit organizations: They would get a 35% credit against payroll taxes!
  • Employers with ten or fewer employees and average wages below $25,000 ill have better luck under these new rules. They will benefit from a 100% credit. Leased employees will be counted as employees, although 2% S corporation shareholders will not be included in the definition of employee.
  • New reporting requirements. If an employer self-insures its employees, the employer must report certain information, including details on each individual obtaining the coverage, their coverage dates and various other information. These reporting requirements will become effective after 2013.
  • Furthermore, starting in January 2011, employers will be required to disclose, on each employee's Form W2, the value of the individual employee's health insurance coverage, sponsored by the employer.

Will these new federal income tax laws make it easier for small businesses to provide health insurance to employees? The Obama Administration certainly says so.

Time will tell.  

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