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Small Business Tax Credit



ISSUE SUMMARY:

The Small Business Tax Credit was included as part of the ACA to encourage small employers to provide health insurance to their employees. Unfortunately, many employers have been unable to claim the credit due to the current eligibility qualifications. Congress should pass legislation that would enable more employers to be eligible for the credit and expand access to coverage for their employees.

ACTIVE LEGISLATION:

  • There is no active legislation on this issue.

ACTION NEEDED:

The Small Business Tax Credit Accessibility Act is a fix to the ACA that would improve, expand, and simplify the small business tax credit. By making the tax credit more accessible and available for a longer period of time, it ensures that more small businesses will be able to provide affordable, high-quality health insurance to their workers.

TAKE ACTION:

  • There are no active Operation Shouts on this issue.

BACKGROUND:

According to a Government Accountability Office (GAO) study, fewer small employers claimed the credit for tax year 2010 than were thought to be eligible based on rough estimates of eligible employers made by government agencies and small business groups. The GAO study went on to suggest there was low use of the tax credit because many small businesses didn’t actually qualify   due to credit size and sheer administrative complexity.

The Small Business Health Insurance Affordability Act would make the following changes to expand and improve the Small Business Health Care tax credits:

  1. Raise the maximum average salary to qualify for the credits from $50,000 to $70,000;
  2. Raise the maximum size of businesses eligible for the tax credits from 25 to 50 employees;
  3. Increase the threshold for the largest possible credit from 10 to 20 full-time employees;
  4. Increase the  average annual wage from $25,000 to $35,000;
  5. Extend the number of years the credit is available from two to three years, retroactive to 2014;
  6. Make the credit available on and off the SHOP exchange as long as plan is ACA compliant;
  7. Simplify and streamline the process for applying for the health care tax credit by: 
    1. Simplify calculations by eliminating the cap that limits employer contributions to average premiums in the state; and
    2. Use the employee headcount and wage information already reported on the employer's tax return to reduce paperwork.

TALKING POINTS:

  • The ACA’s Small Business Health Care tax credits have been vastly underutilized.
  • The Administration originally estimated that $40 billion in tax credits would be claimed by up to 4 million small businesses between FY 2010 – 2019. Yet the most recent data reflects that only $468 million was actually claimed.
  • The most often-cited complaint is the stringent wage eligibility standards. According to the GAO, only a small fraction of businesses were eligible to receive the full credit, primarily because the wage requirement was set too low to have an impact.
  • The second most-cited complaint is the overly complicated process for calculating the credit, further discouraging many companies from applying.
  • Over the past 10 years, the employer contribution to health care coverage has almost doubled – from $6,600 to $11,700.
  • Only 57% of all small businesses currently offer health benefits to their workers, indicating a real need to expand affordable health care coverage to this segment of the population.

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