Small Business Health Care Reform Bill Key Dates and Impacts – Employer Fines, 2010 Tax Credits and Employee Subsidies

Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said IRS Commissioner Doug Shulman. “We urge small businesses and tax-exempt employers to look closely at this important tax break – which is already effective – to see if they qualify.”

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations. Get Free Small Business Health Insurance Quotes

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.

The maximum credit goes to smaller employers – those with 10 or fewer FTEs – paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

Source : IRS

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[Update] After a year of fierce partisan debate, the Democrat-controlled House of Representatives late Sunday night passed the landmark $940 billion health-care reform bill that would extend health insurance coverage to 32 million uninsured Americans, prevent insurance companies from denying coverage to people with preexisting medical conditions and is projected cut the federal deficit by an estimated $138 billion over the next decade. The final tally, which adhered almost entirely to party lines, was 219 “yes” votes and 212 “no” votes. Not one Republican voted for the measure. The health care reform bill has also been signed into law by the President, but a number of other bills (including reconciliation) to modify or amend to the current bill have been submitted. So stay tuned for further updates by subscribing (free) via RSS or Email

- Starting in 2013, Americans under 65 won’t be able to deduct medical expenses until they exceed 10 percent of income, up from 7.5 percent now; retirees would keep the lower threshold.

- Starting immediately, consumers who hit the medicare-gap would receive a $250 rebate. In 2011, they would receive a 50 percent discount on brand name drugs. The Medicare prescription drug program and its unpopular “doughnut hole” — a big, expensive gap in coverage that affects millions — would be eliminated by 2020.

- Starting in 2018, employers that offer workers pricier plans — or those with total premiums of $10,200 or more for singles and $27,500 for families — would be subject to a 40 percent tax on the excess premium. Retirees and workers in high-risk professions like firefighting would have higher thresholds ($11,850 for singles, or $30,950 for families), pegged to inflation.

- The legislation for the first time would place a $2,500 limit on what can be contributed to employer-sponsored flexible spending accounts, another type of account funded with pre-tax dollars that can be used to pay for medicines, co-payments, and other expenses. Employers currently set their own limits, typically between $3,000 and $5,000 in the absence of a government cap. This change would cost an average worker about $625 in tax savings

- By October 2010 (assuming no legislative changes), many insurance company plans would be prohibited from placing lifetime limits on medical coverage, and they could not cancel the policies of people who fall ill. Children with pre-existing conditions could not be denied coverage.

- By year end dependent children up to age 26 would also be eligible for coverage under their parents’ plans – instead of the current state-by-state rules that often cut off coverage for children at 18 or 19.

- Health insurance will be compulsory for all Americans, and new state-run insurance exchanges would be setup to provide affordable/competing options to private insurers. Americans who do not obtain health insurance would face a federal penalty starting in 2014. The first year, consumers who did not have insurance would owe $95, or 1 percent of income, whichever is greater. But the penalty would subsequently rise, reaching $695, or 2 percent of income. Families who fall below the income-tax filing thresholds would not owe anything. Nor would people who are unemployed or cannot find a policy that costs less than 8 percent of their income.

Companies would face fines as high as $750 per worker if even one employee seeks federal help to buy a policy. Yet paying the fine could be more cost effective for companies and their low income workers, than subsidizing employee health insurance. Federal subsidies will be available to people purchasing medical coverage through the state-based insurance exchanges, which are expected to be up and running by 2014.